Though every financial instrument follows the same pattern but you will not see it clearly on real time charts as I shown in imaginary figures. This fractal pattern span decades, with smaller versions of the pattern even visible on one-minute or tick charts. The Elliott wave impulse pattern is a foundational pattern of Elliott Wave Theory. All about Prechter, and his current bearish view on the stock market, Investors are waiting for ‘cash on the sidelines’ to juice the stock market — this is why that idea is hogwash, Famed investor ‘doubling down’, says stock market a ‘real humdinger’ of a bubble, Billionaire Carl Icahn says he’s well hedged ahead of a potential ‘painful correction’ for the stock market, UnitedHealth unit Opum to acquire Change Healthcare for $25.75 a share in cash, sending stock up 37% premarket, U.S. tech giants fall as much as 3% in early premarket action after Georgia election, Morgan Stanley lifts target price on Tesla to $810, while Barclays reiterates $230 view, American colleges are facing a $130 billion crisis, Warnock projected to win Georgia Senate race, as Ossoff clings to slim lead. Though these three rules are not everything about Elliott Wave’s Theory but these three simple rules will help you a lot in identifying patterns, predicting levels and taking low risk entries in market for high profit. An independent Elliott Wave Theory analyst, trainer and trader. I combine wave theory with standard technical analysis to track market movements and predict future movements. The Elliott Wave Chart Blog provides Free Elliott Wave Forecasts of the US stock market. And that zigzag formation consists of a set of 5 waves in the direction of Primary/Main/Bigger trend followed by a set of 3 waves opposite to direction of main trend. On the first chart below you can see a complete 5-3 Elliott Wave cycle. There will be option at top of chart named as “Chart Setting”. Because all other advance as well as basic Elliott Wave rules are guideline can be used only when you have idea about the position of price in Elliott Wave Cycle. Over years of Elliott Wave Forecasts and Analysis on the Web. Elliott Wave Theory Explained on chart And wave 2 and 4 of are corrective waves of lower degree. Ralph Nelson Elliott discovered back in the 1930s that the market moved in waves of five and three legs. Three of those waves (1, 3 and 5) move in the direction of the underlying trend, or impulse, while the two intervening waves (2 and 4) act as countertrend interruptions, or retracements, of the motive wave. In Elliott’s original work, he identified nine degrees of waves, that could range from decades to intraday movements. Now, after completion of Impulsive; Three waves move (corrective) started from point “5” (end of impulsive) and completed at point “C” were: –. Unfortunately, there are many Elliott Wave analysts in that camp, and they have given Elliott Wave a very bad name of late. Don’t miss:All about Prechter, and his current bearish view on the stock market. These patterns not only appear in markets but anywhere humans make decisions en masse. Take a close look, remembering that five-wave moves are motive while three-wave moves are corrective. 2. Turn back and read once more if you are not clear of the concept and the step forward to next topic of “Basic Rules of Elliott Wave Theory”. This feature allows the Elliott wave trader to identify Elliott wave 1, as it is happening in real time. Tomi Kilgore is MarketWatch's deputy investing and corporate news editor and is based in New York. It is often referred to as the golden, or divine ratio, because it has been found throughout nature, such as in the breeding pattern of rabbits, the DNA double helix, how petals on a flower are arranged, proportions of the human body, a galaxy spiral, and so on ad infinitum. This 5 waves rally completed wave (1) in Intermediate degree. These are just simple wave’s rules but applicable in every pattern and in every conditions. The 5-period moving average, on the other hand, is based on 20% of the … Wave C is again impulsive after completion of wave B which a set of 5 inner waves. The set of 5 waves in the direction of main trend he called “Impulsive” or “Impulse”. Wave 1 is impulsive which a set of 5 inner waves. All the inner/lower degree waves of “Impulsive” (set of 5 waves) will be marked as 1,2,3,4 and 5. If no indication is made, please assume that the chart depiction is the main Elliott Wave count. If, for example, the market makes a high next week above this past week's high, the market should move lower the following week. “The Wave Principle, then, reflects the fact that waves of any degree in any series always subdivide and re-subdivide into waves of lesser degree and simultaneously are components of waves of higher degree,” EWI explains. Here bigger wave are marked as big characters 12345 and ABC whereas lower degree/inner waves are marked as small characters (I, ii, iii, iv and v) and (a, b and c). Now, I assume that points of “Impulsive” and “Corrective”  is clear and we can go little deeper to understand it better. But this is just the start or you can say beginning or concept of Elliott wave theory I explained in this article. One key rule for the simple, zigzag corrective phase is that, in a bull market, Wave B ends noticeably lower than where Wave A starts. The Wave Principle separates price action into two categories: motive and corrective, and this price chart has a clear example of one category. Elliott Wave Patterns Studying the patterns is very important in order to apply the Elliott Wave Principle correctly. 3. The chart below is a good example of how effective this technique can be in counting Momentum Waves. It was developed in the early part of the 20th Century and has been continuously refined through the present day. This complete set of 5 waves in the direction of primary trend followed by 3 waves in the opposite direction of primay trend is called as wave cycle. Founder of “Sweeglu Elliott Waves” and author of most practical book on Elliott Wave Theory, “Practical Application of Elliott Wave Principle”, Basic Concept of Elliott Wave theory explained with examples – Wave’s Cycle, is a part of very first chapter of my book “. But those who have complete knowledge of Elliott Wave’s Theory can understand and identify these charts in first look only. The practical online Elliott Waves course that will change the way you trade, forever! Let me show you on image (1.3). In this book, most of the examples I covered with uptrend (bullish trend) as main trend and down trend (bearish trend) as corrections. In this section, we will introduce the rules of wave formation and the … Wave 3 - Elliott Waves Elliott Wave Theory - Wave 4 Three main rules for impulse waves in Elliott Wave theory There are 3 main rules, which anyone who wants to make an Elliott Wave analysis must know. And the set of 3 waves opposite to the direction of main trend he called “Corrective” of “Correction”. Take a moment to look back at the Elliott Wave Cheat Sheet series I’m developing: 1. Elliott Wave #3: Best Trades to Take Notice on the chart above the waves a & c are impulse waves and b is corrective wave. This much-acclaimed advanced online Elliott Wave course is in two parts. Completion of a set of 5 waves forms a bigger wave 1 and there is a start of bigger corrective wave 2 which is again a set of 3 waves “ABC” that corrects whole set of 5 waves (bigger wave 1). It is a natural law, a path on which the stock market moves. Don’t try to think hard and compare these imaginary figures with real time chart but, just try to understand the concept. As you learned above, Impulsive is consisting of Five Waves 1,2,3,4 and 5 in the direction of main trend and corrective consist of Three Waves A, B and C opposite to the direction of main trend. AAPL, ). Just see the image (1.1) given below, it is just a simple imaginary representation of movement of market based on Elliot Waves Theory. See an example below: 3.3. This spiral, which takes the form of a Nautilus sea shell, is commonly used to describe the mathematical ratio that Elliott Wave theorists lean on to explain why the stock market follows similar patterns to those found in natural systems, including living creatures on earth and galaxies in space. This chapter covers only the base of Elliott Wave Theory that you need keep in your mind before going forward. And again, in the simplest terms, a 61.8% retracement of the uptrend from the April 2013 low of $55.01 to the record high comes in at $85.39, which is 35% below current levels. First rule: Wave 2 cannot retrace the whole wave 1. The 35-period moving average is slower to react to price as the previous closing price comprises just 2.9% of its value (1/35). Free live chart for Elliott Wave Analysis. Lance Roberts explains why money won't soon pour into the stock market from bank and money market accounts. It describes the natural rhythm of crowd psychology in the market, which manifests itself in waves. But given that Wave 3 is more than 1.618 times the length of Wave 1, and Wave 3 is longer than the length of Wave 1, the pullback from the May 28 record intraday high of $134.54 could already be the start of a corrective phase. And I will explain everything in next chapters how to use these rules for profitable trading. Those who are well versed in the intricacies of these patterns can gauge where the market’s recent movements fit into them, and then predict where the market will move to complete the cycle. By Avi Gilburt. It describes the natural rhythm of crowd psychology in the market, which manifests itself in waves. Look at this chart and see if you can draw out the 5 Elliott Waves in this chart. But if you see deeply within Impulsive (set of 5 waves up move marked as 1,2,3,4 and 5), Inner/lower degree wave 1, 3 and 5 are in the direction of main trend but wave 2 and 4 are opposite to the direction of main trend. If this is your first visit, please read the welcome message.Then, take a moment to visit the Home page!. This pattern is the last correction in impulsive or corrective structures. So here, I am going to explain everything about Elliott wave theory cycle and some basic rules and guidelines which justify a correct wave cycle. Inner/Lower Degree wave A and C are impulsive of lowest degree which consists of 5 inner waves whereas B is corrective of smallest degree and consist of 3 inner waves (abc). Elliott Wave theory is one of the most accepted and widely used forms of technical analysis. “In summary, the essential underlying tendency of the Wave Principle is that action in the same direction as the one larger trend develops in five waves, while reaction against the one larger trend develops in three waves, at all degrees of a trend,” according to EWI. So I thought it would be fun to pull an example from that report and have you take us through what pattern is unfolding on the chart. What is The Elliott Wave Chart Blog About? And proceed on next lesson: There are 8 waves called 12345 and ABC but we can’t mark any move as 12345 and ABC. This is the wave’s cycle that every financial Instrument including Stocks, Indexes, Commodities, and Currencies follows. Where: –. All the inner/lower degree waves of “Corrective” (set of 3 waves) will be marked as A, B and C. Inner wave 1 started from points “0” and completed at point “1”, Inner wave 2 started from points “1” and completed at point “2”, Inner wave 3 started from points “2” and completed at point “3”, Inner wave 4 started from points “3” and completed at point “4”, Inner wave 5 started from points “4” and completed at point “5”, Inner wave A started from points “5” (end of impulsive) and completed at point “A”, Inner wave B started from points “A” and completed at point “B”, Inner wave C started from points “B” and completed at point “C”. Elliott Wave Theory explained in later chapters with lots of examples on real time charts. Corrective waves are composed of three smaller waves if viewed on a smaller chart time frame. And market moves in this formation only, Completing bigger impulsive followed by bigger correction. For now, just remember these 3 rules. One of the keys to interpreting wave counts is to determine what degree the wave in question represents. Waves 1 and 2 - Elliott Waves Elliott Wave Theory - Wave 3. Interpretation of the EWO can be done through what its individual components tell you. You can follow him on Twitter @TomiKilgore. “Something that was fuzzy and out of focus, suddenly came into focus.”. Wave 3 is never the shortest out of the impulse waves 1, 3, and 5. In this example of USDJPY Elliott wave analysis, I noticed an impulsive rally off the post brexit low. Wave B is corrective for wave A that corrects wave A which is a set of 3 inner waves. Elliott Waves Educational Program by Ramki Ramakrishnan. Note how the two phases of trend – motive and corrective – fit together to form the whole pattern. The analysis suggested that wave '3' was about to start, and that the rally should be big! A 5-period moving average is much more responsive to price than a 35-period moving average. Elliott Wave Theory Explained on chart. The corrective wave, usually labeled by technicians by letters, consists of two waves (A and C) that move in the opposite direction of the motive wave, and an intervening retracement wave (B) that moves in the same direction of the motive wave. Wave 2 can never go below the start of wave 1. So let’s start from simple end. Unlike "fundamental" analysis, the Elliott wave approach to market forecasting is objective. I just tried to explain the basics of Elliott Wave Theory  with imaginary graphs and figure to make you understand easily. Basics of Elliott Wave Theory Explained (Chart 1.4) I hope you are familiar with basic cycles of Elliott Wave Theory now, which says every impulsive is consist of a set of 5 waves followed by a correction which is a set of 3 waves. The opposite is true in a bear market. Turn back and read once more if you are not clear of the concept and the step forward to next topic of “Basic Rules of Elliott Wave Theory”. Basic Concept of Elliott Wave theory explained with examples – Wave’s Cycle, is a part of very first chapter of my book “Practical Application of Elliott’s Wave Principles by Deepak Kumar”. Five waves move (impulsive) started from point “0” and completed at point “5” were’. Trader and educator Jeffrey Kennedy shows real market examples that illustrate how proper Elliott wave analysis can help traders accurately identify and trade important turning points in any market.. It may be very difficult for you to understand these charts because you don’t have complete knowledge and it is almost impossible to make you understand if don’t know everything about EWT. Completion of smaller set of 5 waves move is a completion of bigger Impulsive and there will be the start of bigger correction followed by bigger impulse upside and the cycle goes on.  would climb to above $209. And it is easy to learn once you start with a perfect guide because every condition, every pattern and every calculation is inter-related to each other. “Because the five wave pattern is the overriding form of market progress, all other patterns are subsumed by it.”. The Elliott wave model proposes that the price moves in 5 waves in the direction of the trend, and waves 3 against. But in reality, Elliott wave theory is simplest, Easiest and most accurate analyzing method if you understand it completely. There are exceptions in this rule that will be explained later. Elliott Wave #2: Wave Labeling 3. The Elliott Wave principle is based on Ralph Nelson Elliott’s conviction that social, or crowd, behavior tends to trend, and reverse, in identifiable patterns, or cycles. In this image, I just broke down bigger waves into smaller/lower degree wave. Now, if you bring the basic 5 wave pattern and the 3 wave pattern together, you get a complete Elliott wave cycle that consists of 8 waves and looks like this in an uptrend market: Basics of Elliott Wave Theory Explained on chart Third rule: Waves 1 and 4 must not overlap. “It was wonderful,” Zimmerman said. But the rules are applicable same on both bullish and bearish market. The internal make up of each motive wave should also unfold in 5 waves. See every chart and read till the end. Note:  – If we see the history of market from start, the main/primary trend is always up as the market cannot go below zero. Means, wave 3 can never be shorter than both 1 and 5. The subscription price still remains the same, at $19.99 / month. +1.24% Financial markets, stocks or financial instrument moves in zigzag formation consists of a set of 5 waves in the direction of Primary (main or major)  trend followed by a set of 3 waves opposite to direction of primary trend. “At any time, the market may be identified as being somewhere in the basic five-wave pattern at the largest degree of a trend,” according to a tutorial provided by Elliott Wave International to its members (Club EWI). Different waves in an Elliott Wave structure relates to one another with Fibonacci Ratio. There’re a few deferent shapes of triangles. There is a formal way to label the degrees of Elliott Wave Theory, the details of which can be found in Elliott Wave … If it does, the market’s latest move must be part of a larger motive wave, which could be progressing higher or lower. I labelled that wave '1' up, what came next was a 3 wave decline in wave '2' at that point an elliott wave forex signal was in place. The third wave eventually rises to 1.618% extension of the first wave. If it exceeds 161%, its next goal will be 261.8% and, rarely, 423.6% of wave 1. Wave 5 is again impulsive after completion of wave 4 which a set of 5 inner waves. Every inner wave 1, 3 and 5 of is also small/inner impulsive of lower degree. Under Prechter’s view, the U.S. stock market’s rise from 1932 was the beginning of a Supercycle, with the rally to 1937 representing the first wave of a Cycle degree. This slideshow presents some of the basic tenets underlying the Elliott Wave theory. Pullback in wave (2) has also ended at 13061.40. The Elliott Wave principle is based on Ralph Nelson Elliott’s conviction that social, or crowd, behavior tends to trend, and reverse, in identifiable patterns, or cycles. A complete cycle of wave development actually consists of eight waves, made up of two phases: 1) a wave subdivided into five waves and 2) a three-wave corrective wave. Ralph Nelson Elliott developed the Elliott Wave Theory in the 1930s. Elliott believed that stock markets, generally thought to behave in … And the cycle goes on. You see here two charts of Sterling Pound (GBP/USD). Elliott Wave cycle is the base of Elliott wave theory analysis and it is important to understand wave cycle before understanding wave personalities, patterns and Fibonacci calculations. Download my entry strategy: http://bit.ly/free-entry-strategy Get ready for the ultimate Elliott Wave tutorial! There must be some rules and conditions to mark waves and these basic rules are: –. Sign up for the FREE Elliott Wave Newsletter Elliott Wave theory is one of the most accepted and widely used forms of technical analysis. Examples might include housing prices, fashion trends or how many people choose to ride the subway each day. Copyright © 2021 MarketWatch, Inc. All rights reserved. The textbook definitions of wave counts and degrees are always open to interpretation, something a simple slide show of charts can’t completely explain. The essence of Elliott waves is that prices alternate between impulsive phases that establish the trend and corrective phases that retrace the trend. Prechter is the president of Elliott Wave International. You can find an example of such a case on the last chart. Walter Zimmerman, chief technical analyst at energy research firm United-ICAP, who studied chaos theory and complex systems in graduate school, said the process of price discovery follows a similar fractal structure: “The next price is always a function of the previous price, in any market, even at the open.”. Robert Prechter has since become the foremost authority on Elliott Wave theory by applying and enhancing Elliott’s ideas. Elliott used the stock market as his main source for research, because it was an easy way to chart the current and past behavior of a crowd with similar interests. Wave 4 cannot overlap wave 2, i.e wave 4 cannot go below the end of wave 1 or start of wave 2. See the chart (1.4) below. Wave A is impulsive which a set of 5 inner waves. Wait, check all our Premium Services for at least 15 Days before paying your hard earned money. After getting this chart, use the features shown in next screenshot to get the chart you needed for Elliott Wave Analysis. Just read the image carefully and try to identify how I represented waves 1, 3, 5, A and C as impulsive (5 waves moves) and wave 2, 4 and B as corrective (3 waves move). Wave 4 of (3) is formed as a triangle, but right after the wave 5 of (3) the market developed another triangle in wave (4). And I hope this article will be enough to make you understand everything about Elliott’s Wave Cycles. What I will do, instead, is to give you one example now, and show you how the magic of Elliot Wave Principle works in the Forex market. Elliott Wave International has a popular report that allows readers to test their own knowledge of the Wave Principle. Example: – The completion of bigger impulsive in 2008, most of the world’s market completed bigger Bull cycle in 2008 followed by bigger correction that fell almost 60-70-% of total upside of history followed by start of new bull trend for new cycle. Just below the title (see examples above), indication will be made on whether the main Elliott Wave count only is shown, or both the main and alternate counts. And each wave or phase tends to have a Fibonacci relationship with other waves or phases; thus a retracement phase is often close to 0.382 (1 minus 0.618), or up to 0.618, the length of the motive phase. Every wave of this Elliott’s Wave Cycle has separate personality, separate calculation and separate internal structure in different conditions. From here on, traders can anticipate where the next decline can occur. Elliott Wave Labels, Trendlines, and Fibonacci Targets: 1) Main and/or Alternate Count. There are some real charts given below where I applied Elliott Wave Principles in real life and also traded on that. In an Elliott Wave chart, notice that smaller wave structures are labeled differently than the larger wave structures to help distinguish between the degrees of the waves. The Wyckoff Method is a … • Wave 2 can’t retrace more than 100% of Wave 1, according to the Market Technicians Association. For example, a corrective Wave (A) could be the beginning of a countertrend Wave 4 pullback of a 5-wave uptrend to a larger degree. The up move till the bigger impulsive is Bull Market and later correction is Bear Market  followed by the start of new Bull Phase that goes well above previous high again. Elliott Wave Introduction Cheat Sheet 2. The Wyckoff Method is one of the four timeless approaches to market analysis (the other three being Dow Theory, Shabacker’s chart patterns, Elliott Wave Theory and Gann’s swing trading approach). If it does, then Wave 2 might not be a corrective wave as originally thought, and could actually be moving in the direction of a motive wave to a larger degree. Elliott observed that every financial market, stocks or financial instrument moves in zigzag formation and called it wave’s cycles. For example, in impulse wave: • Wave 2 is typically 50%, 61.8%, 76.4%, or 85.4% of wave 1 • Wave 3 is typically 161.8% of wave 1 The Elliott Wave Chart Site offers Elliott Wave Analysis and Forecasts for the DOW, Nasdaq, S&P 500,(SPX), Crude Oil, Natural Gas, Gold, Silver, HUI, EURO and the USD. Simple Elliott Wave Theory Example In the above chart you can see that wave 2 retraces wave 1 but it does not overlap the first wave completely. The Fibonacci ratio of 0.618, made famous by a 13th-century mathematician named Leonardo Fibonacci of Pisa, is based on a number sequence, in which the sum of two adjacent numbers forms the next higher number (1, 1, 2, 3, 5, 8, 13 ...). IPO Example Charts - Market Analysis for Jun 15th, 2017. Under Elliott Wave theory, the most basic pattern of market progress is the motive wave, which is subdivided into five waves and usually labeled by technicians with numbers. The Bottom Line. Complete 8 Wave Cycle. Wave 2 can never correct more than 100% of wave 1, i.e. I like to chart and I am an avid student of Elliott Wave Theory. Practical Application of Elliott’s Wave Principles by Deepak Kumar, Bank Nifty Elliott Wave Analysis and Forecast, Nifty and Bank Nifty Analysis Report Daily. Elliott’s “The Wave Principle,” was originally published in 1938. As the above chart shows, each wave could be part of another wave of a higher degree, which in turn could be part of another wave of an even higher degree. Elliott Wave Theory Explained on chart Then see if you can identify the fractal waves. Just see the image (1.2) and try to identify Impulsives and correctives. For example, the first impulse wave higher within an uptrend on a daily chart is composed of five waves on an hourly chart. That doesn’t necessarily mean the start of a new corrective phase is imminent. See the chart (1.4) below. So, I am just copying very first chapter “Wave’s Cycle and Principles of Elliott’s Wave Theory” of my book in this Article/Lesson. Wave 2 is corrective for wave 1 that corrects wave 1 which is a set of 3 inner waves. Wave 3 is again impulsive after completion of wave 2 which a set of 5 inner waves. I am not adding any real time chart in first chapter as it may confuse readers in the start. Analyzing Indian Indices and stocks since 2011. Many of my followers and blog readers requested me to explain Elliott wave’s cycles in details so that they can understand better. He identified a number of patterns of movement, or waves, that recurred, in combination with larger, and/or smaller, versions of the same patterns. Normally, it is the longest wave, it is prone to reach 161.8% of wave 1. Rally from November 30 low in DAX ended at 13774.45 as an impulse Elliott Wave structure. Thus, a combination of 3 Impulsive and 2 corrective forms a Bigger impulsive. Fewer price data points are included the 5-period. Wave 1 is impulsive which a set of 5 inner waves. In Elliott Wave, the five waves of a motive of phase have a Fibonacci relationship with the eight waves of a complete cycle. The essence of Elliott waves is that prices alternate between impulsive phases that establish the trend and corrective phases that retrace the trend. His labels read a little like the classification of living things: 1) Grand Supercycle2) Supercycle3) Cycle4) Primary5) Intermediate6) Minor7) Minute8) Minuette9) Subminuette. Elliott Wave Theory Explained on chart Thus, a whole impulsive is completed from point 0 to 5. The Elliott wave principle is a form of technical analysis that finance traders use to analyze financial market cycles and forecast market trends by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. Means, inner wave 1, 3 and 5 that are in the direction of main trend are also consist of 5 smaller waves. Most of the analysts find Elliott’s Wave Theory confusing just because they don’t have complete knowledge and they try to follow short cuts or they are just misguided. United-ICAP’s Zimmerman said it took years to cultivate his understanding of Elliott Wave theory. There are certain “rules” that govern the five-wave pattern: • Wave 4 cannot enter the territory of Wave 1, according to EWI. • Wave 3, which often represents the strongest part of the market cycle, can’t be the shortest by price, compared with Wave 1 or Wave 5. Second rule: Wave 3 cannot be the shortest among waves 1, 3 and 5. If Wave 5 develops into a “fifth-wave extension” that is 1.618 times the length of the first three waves, Apple’s stock The pattern of the market action, if correctly determined, not only tells you to what price levels the market will rise or decline, but also in which way (or pattern) this will happen. Wave 4 is corrective for wave 3 that corrects only wave 3 which is a set of 3 inner waves. I hope you are familiar with basic cycles of Elliott Wave Theory now, which says every impulsive is consist of a set of 5 waves followed by a correction which is a set of 3 waves. Basics of Elliott Wave Theory Explained on chart In the simplest form, a weekly chart of Apple Inc.’s stock could represent an example of a five-wave pattern. Then all off a sudden, it became clear to him, like one of those “Magic Eye” pictures that if you blur your eyes just right becomes a detailed 3-D image. Wave 3 can never be the shortest wave in full 5 wave’s cycle. Free live chart for Elliott Wave Analysis. Whether or not Momentum Waves could be considered as true Elliott Waves is not important. The first is a monthly chart going back to the early 1980s.

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