The 5 Magic Bullets than can Kill a Trend

Bill Williams my father and founder of The Profitunity Trading Group created the 5 Magic Bullets to help him identify the factors that were consistently present at the end of a trend. We have made one change due to today’s markets and volatility. However the root of this method or tool is still very useful in our analysis of the waves and markets.

The first Magic Bullet we look for is Divergence, there must be a divergence within the wave you are examining

First we are looking for divergence between the price and the momentum on the Williams AO Oscillator. (Awesome Oscillator).

If the market is going up, the price at the end of the impulse wave must be higher than the price at the peak of Wave 3 on the AO.  The AO must be lower at the highest price with a lower AO peak than in Wave 3.  See the Bitcoin chart.

We are using Bitcoin for our main example here. 

The first magic bullet is Divergence in the impulse wave or C Wave. That will help us identify with the end of a trend. On this Bitcoin chart we have divergence at the end of the impulse wave.

There is divergence between price and the peak on the PROFITUNITY AO, otherwise known Awesome Oscillator.

It used to be most markets turn on a single divergence but today we’re seeing at least two and many of them have multiple divergences- especially the indices for example.

Here we continue on this chart until the next AO peak  comes in here but our price is higher so we have another divergence from the first peak on the AO to the second the then the final one at the end.  See the yellow marks on the chart.  This is the first Magic Bullet we look for.

The second Magic Bullet we look for is Price in Target zone – which we have changed to a Wiseman Bullish or Bearish divergent bar.

On this slide we see the Wiseman bearish divergent bar, this is a signal from Profitunity that we use to enter a trade, and also use the opposite end for an exit. The bearish divergent bar is marked with a red circle under the signal, and will only be present above the Gator. A buy can only be present below the Gator lines.

Our third Magic Bullet is a fractal that is present (top of uptrend or bottom of downtrend)

On the next slide you can see there is a fractal buy at the top and a fractal sell. Profitunity uses the Wiseman Fractal signal to enter a trade. The fractal in the opposite direction can be the entry depending on the situation.  A fractal will almost always be present at the end of every trend. It’s the third PTG tool for identifying the end. The fractal is shown as a green triangle above the signal bar.

Our fourth Magic Bullet is A Squat bar is one of the top three or bottom three bars.

If you are not familiar with the PROFITUNITY Squat bar please see our other blogs or Trading Chaos 1st and 2nd edition.  The squat bar is present 80-85% of the time at the end of all trends.  On the next slide it shows there is a Squat bar at the top of the chart which is also the Wiseman Bearish divergent bar. The Squat bar is labeled as a blue on the price bars.  This meets the 4th criteria for the Magic Bullets.

Our fifth and final Magic Bullet is A change in momentum from up to down, or down to up.

On the next slide we can see that there is a change on the PROFITUNITY AO from green to red, this is signaling a change in direction, and momentum of the price action. This is the last thing we see change before the change in trend. It is the 5th Magic Bullet that we use to help identify the end of the trend or impulse wave.  To learn more about the Awesome Oscillator check out  Trading Chaos or contact our office.

This is usually a point zero of some degree when all of these factors are present. It could be of a small degree of Elliott Wave or large degree depending on the time frame you are looking at. This can be applied to any time frame or impulsive wave sequence.

The next slide is a chart of the Micro S&P intraday. This chart shows that all Magic Bullets are present except for divergence. There are not enough bars in that portion of the wave to see if there is a divergence. So on this chart the market turns on the peak of the AO. This will happen in the waves if short, so understanding divergence is key to this process. We have 4 of the 5 Magic Bullets on this chart that we can see and the market turned quickly the other direction.

On slide #8- is an intraday chart of Gold. This shows all the magic bullets in place and the market turns very quickly after. The Gold chart is a great example of what PROFITUNITY traders look for to find trades or exit after a trend. 

The Magic Bullets are a part of Profitunity’s trading methods and have been in use for over 25 years.

For more information contact our office.

May All That You Wish For Be The Least you Receive