Gold and Silver Club Ebook

GOLD&SILVER
How the Wave Principle Can Help You

to Identify Actionable Opportunities
Gold & Silver How the Wave Principle Can Help You
to Identify Actionable Opportunities
Introduction
While the mainstream media was busy reporting the fundamental reasons that gold and silver would continue
their incessant climb, the market action in December 2010 in both markets demonstrated a textbook Elliott
wave structure a contracting triangle. This structure allowed our Metals Specialty Service to forecast the
subsequent moves a thrust out of the triangle that was followed by a swift drop in price.
A triangle provides one of the clearest outlooks of any Elliott wave pattern, and it offers traders specific,
actionable opportunities. This report presents a chapter from EWIs upcoming eBook, How to Trade Triangles
and the Thrust that Follows, by EWI Senior Tutorial Instructor Wayne Gorman. He will take you through a
real-world example of the triangle and show you how you can take advantage of this classic pattern. Weve
also included a handful of EWIs daily articles to give you the inside scoop about how the Metals Specialty
Service forecast these moves.
Section 1 Trading Scenarios Impulse Waves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Excerpted from How to Trade Triangles and the Thrust that Follows

by Wayne Gorman, EWI Senior Tutorial Instructor
Section 2 Triangle / Thrust in Silver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Im Beginning To See A Pattern Here
Section 3 Triangle / Thrust and Subsequent Move in Gold . . . . . . . . . . . . . . . . . . . . . . . . . 20

Thars Gold In Them Thar Charts!
Learn more and put the power of the Wave Principle to work for your portfolio. Go to: http://www.elliottwave.com/wave/MetalsSS.
To return to Club EWI for more free resources, go to: www.elliottwave.com/clublibrary
2011 Elliott Wave International www.elliottwave.com
Section 1 Excerpt from How to Trade Triangles and the Thrust that Follows
How to Trade Triangles and the Thrust that Follows Chapter 2

Trading Scenarios Impulse Waves
Lets begin the section with trading scenarios within impulse waves. In the trading sections, I assume that you
understand Elliotts rules and guidelines. If you need to review those, please go to our website where we have
educational materials that can help you.
Figure 2-1
This is a weekly bar chart of COMEX
cash gold, pit session only. Were
going to look at a trading example with
triangles in this market back in 2001
to 2002.
Figure 2-2
As you can see, Ive identified an
Intermediate wave (1) and Intermediate
wave (2) followed by Minor waves 1,
2, and 3.
In 2001, gold saw a double bottom
on the nearest futures contract at 255,
although it was not seen in the day
session in cash. I want to focus on the
impulse wave following Intermediate
wave (2) in blue. We already have
waves 1, 2, and 3, and were going to
start trading in that fourth wave after the
termination point of wave 3.
Lets think about some of the points
that can guide us in taking a position.
First, we know that fourth waves often
are triangles in an impulse wave. Next,
see if wave two makes a sharp pullback,
which it does. We know from Elliotts
guideline of alternation that if wave
two is sharp, then wave four will most
likely be sideways. So we have two
good reasons to expect wave four to be a
triangle, and thats how well approach
our trade.
Learn more about the independent analysis in the Financial Forecast Service. Go to: http://www.elliottwave.com/wave/FinancialForecastService.
3
We want to establish entry points, stop levels, and target levels so that we can pinpoint our potential risk
and our potential reward. Ill just refer to them as risk and reward, but keep in mind that were talking about
potential risk and potential reward.
Lets look at some other guidelines and factors as we anticipate the first move off of this top in wave 3. Well
be looking for an A wave to the downside, and that A wave will represent the first wave within the triangle.
Figure 2-3
In order to establish target price levels,
we can use Fibonacci analysis and look
at the retracements. Ive calculated
various retracement levels for wave
4 .382, .5, and .618. Its common
for wave four to retrace .382 of wave
three, so were going to focus on the
306307 level with some potential to
go lower to the 50% retracement around
300. So, to establish our target price,
well look at a Fibonacci retracement
for wave 4, which is somewhere in the
307300 range.
Figure 2-4
What else can we look at? We can
draw in a trend channel, connecting the
termination points of waves 1 and 3 and
then drawing a parallel line that includes
the termination point of wave 2. The
bottom trendline of this channel offers
another guide for the termination point
of the A wave within wave 4. It also is
close to our Fibonacci retracement area
around 307 to 300.
Figure 2-5
What else can we look at? Elliotts
guidelines also say that the fourth wave
will usually terminate in the area of
the previous fourth wave of one lesser
degree. If you look at the chart, you can
see that there are five waves up within
Minor wave 3, so we can look for the
previous fourth wave of one lesser degree wave 9. This gives us another
target. Its a bit lower than what the
channel and the Fibonacci retracements
are showing, but its another piece of
information.
In wave 0 of wave 3, youll notice that
we have an extension a fifth-wave
extension. When wave five extends,
wave four often will retrace to wave two of the extension, because the extension actually began somewhere in
the vicinity of wave two. Thats where wave five normally would have ended, but instead it began to extend.
Figure 2-6
Lets take a position. Well assume that
we were able to go short after wave 3
had peaked in the 322325 area. So,
well assume that we went short at 324.
Well set a stop slightly above the peak
of wave 3 at about 329, and well use
our Fibonacci retracement information
to set a target price in the vicinity of
305. Our risk is $5 per contract, and our
reward is $19 per contract.
5
Figure 2-7
Weve moved forward and we can see
that prices have come down to the area
we were expecting, within that 300307
range. So far the low is around 302. Do
we get out here and take a profit? Well,
lets look at some of the guidelines that
helped us to set our target prices.
Figure 2-8
First, look at the Fibonacci retracements and see where prices are. At 302,
theyve gone a little bit past the .382
between the .382 and .50 retracement.
Figure 2-9
Prices are right on the channel line.
We also have come into that area of
the previous fourth wave of one lesser
degree, and weve gone a little bit past
where the extension started. This looks
like a good level to get out. So, lets
buy at this level. Lets say we get out
at 303 (assuming that we get a good
fill). Therefore, we went short at 324
and we closed out at 303 for a profit of
$21 per contract.
Now we want to go long and trade for
the b wave of the triangle. With the
guideline of alternation in mind, if we
dont get a triangle we should at least
have a flat correction, meaning that the b wave of a flat should go all the way back to the origin of the a
wave. In any case, whether this unfolds as a triangle or a flat, we have a lot of evidence to support a major
move up from here. Using our channel line as support for a b wave to the upside, and given that well assume
that this is a triangle, well go long at 303 with a stop slightly below the low of the a wave at 300. Our risk
is $3 per contract.
Our target price is up in the mid-320s. We know that if its a triangle, the b wave should not go above the
termination point of wave 3, which is at about 328, unless its going to be a running triangle. But we wont
assume that right now; instead well assume a contracting triangle, until the price action tells us otherwise.
So, well set a target at about 325, slightly below the top of wave 3 (the origin of wave a). Our risk is $3 per
contract, and our reward is $22 per contract.
Figure 2-10
Now we start to see a move to the
upside. Do we get out here and take
a profit? No. We have the semblance
of a zigzag unfolding in wave b; its
hugging our channel line and it is proceeding into that area where we expect
to take profit.
7
Figure 2-11
This could be the top of wave b, so
well take a profit here, lets say at about
324. We went long at 303, so that gives
us a profit of $21 per contract. Because
were very close to that 328 level at
the top of wave 3, we will assume that
weve seen the top of wave b or were
close, so we will go short here at 324
with a stop slightly above 328, just
beyond where we believe the b wave
has ended. But to be really safe, we can
afford to set it above the top of wave 3
at 329, and well play the c wave to
the downside.
What can we use for our target for the
c wave? We have the channel line in place to give us a cluster of points at around 311312 for wave c. We
also have the guideline that wave c could be .618 of the length of wave a. The length of wave a is about
$26 times .618, which gives us a distance of $16. The top of wave c comes in at 325. So, $16 off of 325 gives
us a target around 309. However, you can see that 309 falls well below the channel line. Thus our best target
price for wave c in this short position is still in the 311312 area.
Were short at 324 with a stop at 329 and a target price of 311. Therefore, our risk is $5 per contract, and our
reward is $13 per contract.
Figure 2-12
Looking forward, we see that prices
did come down to a little below the
channel line. They came down to 310,
popped up to about 311312, so we will
buy back here because its in the area
of the channel line, and it is also equal
to approximately .618 times the length
of wave a. Now you can see the contraction taking place. We will close out
our position here at about 311. Since
we sold at 324, that results in a profit
of $13 per contract and we will look to
go long and trade for the d wave to
the upside.
Were long at 311, and we will set our
stop slightly below where we believe
the end of the c wave is at about 309.
What would be our target for the d wave? The d wave may be equal to .618 the length of the b wave, and
it should not exceed the top of the b wave at 325. The length of wave b is about $23, which well multiply
by .618 to give us $14. We expect the length of the d wave to be approximately $14.
If we add $14 to the bottom of wave c at 310, we get a target of 324. We also know that the top of the b wave
is 325. So, if we get close to 324, well sell our long position and take profit on that d wave.
Were long at 311 with a stop at 309 and a target price of 324. So, our risk is $2 per contract, and our reward
is $13 per contract.
Figure 2-13
We have come up to about 324; were
very close to the top of that b wave.
If we take out that top, then our count
is off. Were going to take profit here
at the 320 level and start to think about
positioning for the end of the triangle,
the e wave.
Now lets assess our next trading
position. Were looking for the
termination of this triangle, so lets
gather some more information.
Figure 2-14
I have connected the termination
points of a and c to draw in
my A-C trendline, which tells me
approximately where the e wave
should terminate at about 316.
9
Figure 2-15
Ive established the end of the d wave,
so now I can connect the termination points of b and d and draw a
trendline there. Now I have both of the
trendlines for the triangle, setting the
boundaries for the triangle and giving
me a better idea of where the e wave
will terminate.
Heres another thing we can do. The e
wave may be equal to .618 the length of
c. The length of the c wave was $14,
which, when multiplied by .618, gives
us $8.80 for the approximate length of
wave e. The top of wave d is 324, so
if I subtract about $9 the level is about
315, which coincides with the bottom
of the A-C trendline. So, I have a number of pieces of evidence to tell me that the e wave should end at about
315. But, as you know, it could either undershoot or overshoot the A-C trendline.
Figure 2-16
As you can see, prices did hit the A-C
trendline at about 315 the exact
level was 316 and then they started
to thrust out of the triangle. They have
now gone above the B-D trendline.
We assume that this triangle has
terminated and so well go long at the
beginning of wave 5, at about 326. We
set our stop level slightly below the B-D
trendline at about 322. Now we must set
our target price for this long position.
10
Figure 2-17
We add our channel lines and see that
in wave e of this triangle we actually
had a throw-under with respect to the
channel. An Elliott wave guideline
tells us that when prices go below the
channel (throw-under) you should
expect the fifth wave to go above the
upper trendline of the channel (throwover). So, lets look for the top of that
channel.
Figure 2-18
Ive now put in all of the wave labels
a, b, c, d, and e.
Now, we will use the post-triangle thrust
measurement guideline to estimate how
far wave 5 might travel. Ive gone to
the origin of the a wave, which is
where wave 3 ended, and extended the
A-C trendline and the B-D trendline.
The vertical line connecting those
two trendlines at the origin of the a
wave give us our post-triangle thrust
measurement. It is the difference
between 295 to roughly 328, or about
$33.
So, we will look for wave 5 to travel
about $33 from the termination point of
wave e at 316, up to approximately 349 lets call it 350. Thats a good target price for this long position.
Were long at 326 with a stop at 322 and a target price of 350, so our risk is $4 per contract, and our reward
is $24 per contract.
11
Figure 2-19
Prices are approaching 350. Do we get
out here and take a profit? No. We can
afford to wait for a couple of reasons.
First, were now well out of the triangle.
We can and should have raised our stop
level as we moved up, possibly up to
where it started to gap at 333-334. But
we also have to put our channel back
in to see where we are. If we have a
throw-under on the channel at the end
of the triangle, most likely were going
to have a throw-over in wave 5.
Figure 2-20
The heavy green dotted line is our
target, based on the post-triangle thrust
measurement. And you can see that we
have some resistance up there at about
the 350 level, so we want to be a little
cautious. We want to be quick to close
the position, but we should also give
this move a chance. Lets check to see
where we are on our channel.
12
Figure 2-21
As you can see, prices havent even
gotten to the top of the channel, and
they are starting to gap up. Lets wait
until we get to the top of or above that
channel.
Figure 2-22
Prices have now traveled above the
channel, up to about 365. Though there
is a high probability that this wave will
be extended, prices have exceeded
the post-triangle thrust measurement
guideline and gone above the trendline.
So we have a throw-over. We have a
nice profit, so were going to get out
here at about 365. Thats a profit of $39
per contract.
13
Figure 2-23
You can see that prices actually did go
higher. There was a gap, probably an
exhaustion gap, and the price move
finished at about 384. We did go beyond
our target, but we were successful in the
trade. We can be confident that wave
5 is complete, because now we have a
reversal. Prices have come back down
into the channel, and it looks like wave
(4) of Intermediate degree is starting.
Figure 2-24
You can see now that the entire impulse
wave was complete at that top at approximately 384.
14
Figure 2-25
Lets review. We had the A-C and B-D
trendlines, which helped us to define the
boundaries of the triangle. That helped
us to determine the termination point of
wave e, where the post-triangle thrust
began. You also can see how wave 4, at
its maximum retracement, entered the
price territory of the previous fourth
wave of one lesser degree, and where
the extension started in Minute wave
0, within Minor wave 3.
Figure 2-26
You can see how helpful the channel
lines were in guiding us to find the
bottoms of waves a and c, and even
wave e to some extent, although the
A-C trendline was already in place by
then. But, more importantly, the channel helped us to see the throw-under in
wave 4 and the throw-over in wave 5,
which gave us a signal that it was time
to close out our long position.
15
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Youll get revealing charts and unique analysis
of U.S. markets, gold, silver, and more from
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16
Section 2 Triangle / Thrust in Silver
Im Beginning To See A Pattern Here

The Elliott Wave Principle helps identify structures regardless of the market, the news, or the
opinions of experts.
By Jill Noble
Thu, 13 Jan 2011 15:00:00 ET
Pity the poor fundamental analyst, who must always pay attention to what the Fed says or to which political
party takes charge or to what new product a company develops.
And what about the economic reports that come out a month after the fact, only to be revised a month later?
Then there are interest rates... and costs of production... and purchasing power... and so on. Its a lot to keep
up with.
Not to mention, fundamental analysts have to figure out what all those reports mean to the markets. Weve all
seen that sometimes good numbers turn out bad and bad numbers turn out good What a headache!
If you follow the Elliott Wave Principle, the analysis gets a lot easier.
Our analysts use the Wave Principle and other technical tools to cut through the fundamentals and replace
possible market outcomes with probable market outcomes.
This past December, our Metals Specialty Service published a forecast for subscribers based solely on Elliott
Wave analysis. (Frequent readers of this column will note that earlier this month we highlighted the subsequent
reversal in silver based on the pattern below.)
Heres what we published:
As long as prices remain above the
28.31 low, well stick with the view of
a fourth-wave triangle that expects
a new high the push above 29.36
likely means that the final thrust has
begun it seems that the highest
probability goes to the fourth wave
triangle complete scenario.
This view calls for a thrust to a new
high with prices remaining above
28.74. There should be nothing
holding back silver, and metals in
general, from higher levels over the
next several days.
17

This forecast anticipated a textbook example of a Contracting Triangle pattern, shown here in Elliott Wave
Principle (originally published in 1978):
A triangle appears to reflect a balance of
forces, causing a sideways movement that is
usually associated with decreasing volume
and volatility. The triangle pattern contains
five overlapping waves that subdivide 3-3-33-3 and are labeled A-B-C-D-E.
A triangle is delineated by connecting the
termination points of waves A and C, and B
and D. Wave E can undershoot or overshoot
the A-C line, and in fact, our experience tells
us that it happens more often than not.
Next you can see the resolution of this pattern, as forecast in the Metals Specialty Service:
This is indeed about as close to a textbook example as youll find.
18

There are countless ways to look at the markets. But our expert analysts carefully scan the charts until they
can say, I recognize THAT pattern. In turn, they notify subscribers with informed, methodical and useable
alerts.
For our metals analysts, the benefit of the Wave Principle is its ability to identify a structure that can be
forecast regardless of the market, the news, or the opinions of experts.
19
Section 3 Triangle / Thrust and Subsequent Move in Gold
Thars Gold In Them Thar Charts!

Elliott Wave patterns abound in the Gold market
By Jill Noble
Thu, 20 Jan 2011 14:30:00 ET
Weve all heard the expression feast or famine. It applies to many areas of life, and Elliott Wave market
analysis is no exception.
There are times when even the most accomplished Elliottician pores over charts, awaiting a clear-cut pattern.
In those times patience is a virtue.
But there are bountiful times when the market hits a groove and textbook patterns unfold like they were,
well, straight out of a textbook!
For the past month, gold has been a textbook market.
First came the contracting triangle that ended in late December: it prompted our Metals
Specialty Service to forecast a rally which happened.
Next came the five-wave structure of the rally: this allowed us to forecast an impending
top and decline which also happened.
Then a clear five-wave drop led to yet another in-house forecast, namely a countertrend
rally which brings us to our most recent outcome.
EWI Precious Metals analyst Mike Drakulich provided his Metals Specialty Service subscribers with a
great wave count in February Gold last week, forecasting a likely wave 2 target at around 1390. Gold
turned at 1392.90.
Drakulich did this by a careful read of the charts, which at the time showed a classic five waves down, three
waves up pattern:
Elliott Wave Principle, p.24 Figure 1-3 (inverted)

20
Section 3 Triangle / Thrust and Subsequent Move in Gold

Mike has used the Elliott Wave Principle in his market analysis for over twenty years. And with nearly 30 total
years of experience in the business, he understands the importance of catching every relevant detail, to help
minimize potential risks.
Elliott waves and technical indicators are key to his success.
Heres the chart Mike showed
subscribers. Note his count of five
waves down, three waves up the
most basic pattern to forecast a
corrective rally in gold.
Drakulich called this chart an Elliott

wave thing of beauty.
Experience in analyzing the charts
and using the Wave Principle to
anticipate market moves allows
analysts like Drakulich to make effective
market forecasts.
21
Get Professional-Grade Analysis

for the Worlds Metals Markets
Whether youre a long-term investor
or an active day trader, EWIs Metals
Specialty Service delivers intensive
intraday to long-term coverage of
all major metals including gold, silver,
copper and more. Senior Metals
Analyst Mike Drakulich draws from
nearly thirty years of market experience
to help keep your finger on the pulse
of todays prime metals with concise
forecasts and analysis across all time
frames.
Learn more and put the power of the Wave

Principle to work for your portfolio here:
http://www.elliottwave.com/wave/MetalsSS
22

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GOLD&SILVER

How the Wave Principle Can Help You

Section 1 Trading Scenarios Impulse Waves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

How to Trade Triangles and the Thrust that Follows Chapter 2

The Financial Forecast Service delivers

Learn more about the independent,

Section 2 Triangle / Thrust in Silver

Im Beginning To See A Pattern Here

Section 2 Triangle / Thrust in Silver

This is indeed about as close to a textbook example as youll find.

Section 2 Triangle / Thrust in Silver

Section 3 Triangle / Thrust and Subsequent Move in Gold

Thars Gold In Them Thar Charts!

Elliott Wave Principle, p.24 Figure 1-3 (inverted)

Section 3 Triangle / Thrust and Subsequent Move in Gold

Drakulich called this chart an Elliott

Get Professional-Grade Analysis

Learn more and put the power of the Wave

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