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7/12/2019 Awesome Traders Guide to Elliott Wave + a Simple Trading strategy!
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I will go through how to use an Elliott wave pattern along with Fibonacci
analysis in the forex market, the stock market as well as the commodities
market!
6. How to set price targets using the Elliott wave count and Fibonacci analysis.
the Elliott wave principle is a method of reading the patterned human behavior of crowds by it's
e ect on market prices.
Crowd behavior is completely di erent from individual behavior, this was demonstrated by Solomon
E. Asch in his famous study "Opinions and Social Pressure". (https://www.jstor.org/stable/24943779?
seq=1#page_scan_tab_contents)
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Individuals tend to leave thinking to the 'crowd', as you can see in this demonstration
(https://www.youtube.com/watch?v=NyDDyT1lDhA), and crowds tend to shift from optimism to
pessimism naturally.
Elliott proposed that social mood swings are patterned, and appear in the price movements
(https://bullwaves.org/category/elliott-wave-blog/) of markets.
The Elliott wave principle o ers traders a model for the likely path of prices, which allows the trader to make
forecasts for the future path of prices based on the model.
The Elliott wave model says that the price will trace out ve 'waves' (https://bullwaves.org/category/elliott-
wave-analysis/) in the direction of the trend and then will correct in three waves against the trend.
Once you master the wave counting methods, this knowledge becomes very useful because:
If you know the likely trend, and you know where the price is within that trend.
You can use this information to place a low risk trade to catch the trend as it progresses.
And, with practice, the Elliott wave cycle can be leveraged to make predictions of future market movements.
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The complete Elliott wave cycle involves a ve wave move in the direction of the trend, known as the 'motive'
part of the Elliott wave cycle.
This is followed by a three wave counter trend move, which usually retraces some 50% of the ve wave
pattern, known as the corrective part of the Elliott wave cycle.
Motive waves accelerate the market and move the price along, these the trend waves brake into 5 separate
moves.
Corrective waves are usually in 3 moves, they tend to overlap and make less progress than motive waves.
After a full Elliott wave cycle, the price makes a net move in favor of the larger trend.
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This will help you to identify Elliott waves with more precision.
You can then learn the various corrective wave patterns (https://bullwaves.org/complete-guide-elliott-wave-
correction-patterns/),
and that will help map the current position of the price within the larger framework.
Heres a short video on how to use Elliott Wave correctly by rst identifying
the dominant trend in the market, and then guring out where you sit
within that trend.
In the video I concentrate on the USDJPY forex pair.
You can learn the trend direction in any market by knowing how to count Elliott waves correctly.
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If a ve wave pattern in Elliott wave '1' develops either rising or falling, that pattern will dictate the trend
direction.
So, If you identify the trend direction, given to us by Elliott wave '1'.
Then you can be happy leaving a position open for longer and following that move until its likely conclusion.
The Elliott wave model o ers a gauge as to how far the move is likely to travel.
How does it do that?
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The Elliott wave model proposes that the price moves in 5 waves in the direction of the trend, and waves 3
against.
The internal make up of each motive wave should also unfold in 5 waves.
This feature allows the Elliott wave trader to identify Elliott wave 1, as it is happening in real time.
If you can identify wave 1, then you can expect a correction in wave 2.
you can then progress the Elliott wave count as the waves happen.
Wave 3 will move higher (https://bullwaves.org/elliott-wave-labels/) with the trend, and wave 3 should target
a Fibonacci ratio to wave 1.
Wave 3 is usually the longest wave within the larger pattern, and can reach the Fibonacci 161.8% extension
of wave 1.
All along you can hold your position open until the waves are complete and use corrections in the trend to
place your protective stop.
Following the waves improves your entry position, and improves your exit point.
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This is best way to use Elliott wave in your trading and, you bag you more points in the process!
It can occur that wave 5 will extend beyond its normal size.
This happens whens when the internal third wave within wave '5' creates an extension.
In this case wave '5' can reach 161.8% of wave '1'.
Counting the waves again allows the trader to trace the correction as it happens.
Keeping on top of the Elliott wave count will give you the best opportunity to ride the price correction to its
completion in terms of the waves (https://bullwaves.org/elliott-wave-trading-signals/).
5: Where can I enter a trade with the best risk reward ratio?
Once you master wave counting methods and you can identify elliott wave 1 in the sequence.
Then its time to use this method to identify elliott wave entry points.
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Elliott wave traders are always looking for 'con rming price action' which comes after you identify Elliott
wave 1.
Con rming price action is called an impulse wave, and an impulse wave that has the 'right look'.
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Then, once the price action has reached the end of its wave (2) correction we can look higher in wave
(https://bullwaves.org/using-elliott-wave-rsi/) (3).
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When the market is set up with the 5/3 wave count in place,
we begin to look for the market to turn back in the direction of the main trend.
If this happens, it adds a signi cant weight of con dence to our wave count.
We can then say that we have con rming price action. But we don't enter just yet!
Go!
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Our 'go point' is triggered when the price moves past the end of minor wave 'b' within the correction.
As the con dence level is now at its highest, and price has resumed the trend.
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Once our trade is placed, we immediately check these rules and place our protective stops accordingly.
By using these Elliott wave rules and guide lines, we can minimize our losses to a known amount which
allows us to trade another day!
(https://bullwaves.org/wp-content/uploads/2017/02/Fibonacci-retracements.jpg)
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A Fibonacci Extension is a method of price targeting within the ve wave Elliott wave structure of the primary
trend.
these target levels are given by key Fibonacci levels.
Here are the main Fibonacci extension used in the Elliott wave model.
(https://bullwaves.org/wp-content/uploads/2017/02/Fibonacci-extensions-in-elliott-wave.jpg)
You can use the Fibonacci sequence to set price targets and create entry and exit levels.
A Fibonacci Ratio is useful to set internal targets for an wave count within an ongoing Elliott Wave structure.
The internal waves of an Elliott Wave structure tend to target the Fibonacci Ratio.
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As you can see above the overall wave form.
Price projections can be inferred from the length of wave 1 using Fibonacci math,
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Corrective waves.
There are 3 main types of correction waves, Zig Zag's, Flats and Triangles.
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Also the whole wave form tends to t in a trend channels quite neatly (shown in blue).
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In a zig zag correction we expect to see wave 'a' unfold in 5 waves – got it.
and then wave 'c' complete another 5 waves down, perfect form!
Using the guidelines of the Elliott wave model we could also trade this structure with a high degree of
con dence.
Waiting for wave 'a' down to complete in 5 waves, we watch for a three wave correction.
And once we get it, we can enter on the short side expecting a downward move of similar points distance as
wave 'a'.
in this case it was about 400 points!
Thats two successful Elliott wave trades in the space of 6 weeks, netting 950 points in total!
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There are 2 types of at correction, the regular at and the expanded at.
The expanded version has a 'b' wave which travels beyond the start of wave 'a'
and wave 'c' travels beyond the end of wave 'a' thereby expanding the travel.
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While at corrections are notoriously hard to follow as they unfold, when it resolves, it seems to paint a
complete picture.
And when the correction completes.
You are in a position to make a very high con dence call on the future direction of the market.
Triangles:
The form of the triangle which occurs the most is the contracting triangle.
Triangles are a pause in the trend.
It is almost as if steam is being built up in the market.
Only to explode in the direction of the trend when it concludes.
(https://bullwaves.org/wp-content/uploads/2017/02/13.jpg)
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Each separate wave will complete within the range of the previous wave.
An Elliott wave trader can use the concluding wave of the triangle as an entry point.
(https://bullwaves.org/wp-
content/uploads/2017/02/elliott-wave-
triangle-1.jpg)
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(https://bullwaves.org/wp-content/uploads/2017/02/elliott-wave-triangle-2.jpg)
Conclusions.
The aim of a trading strategy is to identify market turning points, either highs for selling or lows for buying.
It's that simple.
If you can discern an Elliott wave pattern within the often chaotic madness
of the price action, you can make a clear judgement on what should
happen next.
And you know exactly where you are wrong.
TOP ARTICLES:
(http://eepu
Elliott wave blog (https://bullwaves.org/category/elliott-wave-blog/) Long
Term Wave Count for SILVER. (https://bullwaves.org/long-term-elliott-wave-count-for-silver-charts-indepth-
.
video-analysis/)
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