As many traders know, one of the most important aspects of the Trading profession is understanding the trend and how to develop a trend trading system. Many traders wants to trade every single line or move in the Market and that is the major reason why 95%-97% of the traders end up losing within the first year and lose all or most of their capital within the same time period. Trading execution technique is very important yet also very hard as there are hundreds of techniques which can be used for this purpose. Thekey to trading execution however is to do the same thing every time and also have a set of rules in place in order to survive as a trader and possibly be calleda professional trader.
Execution needs a mental aspect and also understanding how and where to enter or exit the Market. Greed cannot be in place and neither should be fear, because both will end up costing money. Reality is also key and we need to be realistic above everything. We do over 3600 charts every month at EWF and we have realized that nobody called the Market 100% correct and the Market always has more than one possible path and each path has either higher or lower probability for it to happen. After all this year, we have come to develop a system which is not perfect, but provide traders with a logical thinking. The system includes Sequences either correctives or impulses , cycle , Time, Distribution , correlation and Elliott wave Theory as a language to explain our views.
This system is based in a Mapping technique which subdivides the Market in Time frames and also in groups to see the Market as a whole. Time has changed and applying Elliott wave as it was developed in 1930 is not enough and we have explained the reason in the following blogs “Elliott Wave Theory: The truth behind the subjection” and “Elliott Wave Principle: Now and Then”
The articles above explain the reason why we look at the Market differently and why we used Elliott wave Theory mostly as a language, because applying the theory by itself is not enoughand it doesn’t worth risking your money. It’s easy to see that trading signal services in the market do not last long and the reason is due to the request and pressure by members to provide signals everyday, this type of services end up trading every single move either with the trend and against the trend, something which end up costing the services. AtElliott wave Forecast, we do provide signals in the Live Trading Room, but only one type of signal which comes either with the trend or justify the sequences. Even when we use a conservative approach and only send signals following these rules, we still do not win all of them, but we stay in the business, because we believe in the rules and we follow them.
The following steps will help you with the process to map the Market and trade as professionals.
- Take any Instrument and start from the Yearly or higher degree time frame.
- Start counting swings and create a sequence either impulsive or corrective.
- Locate targets within the higher degree sequences and then locate invalidation levels within the sequences.
- Locate cycles within the sequences and match the cycles with the targets, respect the target until it is invalidated .
- Start downgrading the time frames and repeat previous steps from step 2.
- Create groups and relate them in sequences, cycles, time and distribution.
- The same group (e.g. AUDUSD, NZDUSD, USDCAD are all within the same group) should follow the same sequences and cycles. A trader needs to relate them all (Groups and Instruments ) and looks at the Market as a whole. For example, atrader cannot be Bullish USDJPY and bearish SPX at the same time, it is a simple process.
Based in Elliott wave Theory, below is an impulse sequences and come in a way of 5 waves up and 3 waves back, the sequences is 5-9-13 and runs until it ends.
Based in Elliott wave Theory, below is a corrective sequences which is very popular in Forex trading because of the nature of the trade.
Following the steps above, traders will locate the trend, sequence, cycles, and targets of each instrument, then traders will see the Market as a whole. The only thing left is the execution when need to wait for areas and trade with the trend of the higher degrees by buying / selling pullbacks. We do not recommend trading the pullbacks because trend can and most of the time extends, but there’s no guarantee how big the pullback can be andtraders can end up being in a the wrong side of the trend. With thewrong money management, over leveraging and bad execution, being in the wrong side of the trend can take all your money.
We hope this blog open your eyes and allow you to see the Market differently, and it will help you understand why most trading signals services do not last and understand that trading with the trend and sequences is the most profitable way to be part of the 5 percent.
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FAQs
To trade Elliott waves, you first determine whether your market is in a bull or bear trend, and then whether it is in the motive or corrective phase of the pattern. From there, you can work out which wave the market is currently in and make predictions about where it might head next.
How reliable is Elliott Wave Theory? ›
The Elliott wave principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations.
What is the Elliott method of trading? ›
The Bottom Line. The Elliott Wave Theory was developed by Ralph Nelson Elliott. It provides a technical analysis of price patterns related to investor sentiment and psychology. The theory identifies impulse waves that establish a pattern and corrective waves that oppose the larger trend.
What according to Elliott's wave theory stock market behavior can be explained as? ›
The Elliott Wave Theory suggests that stock price movements can be reasonably predicted by studying price history as the markets move in wave-like patterns driven by investor sentiment.
What is the best indicator to use with Elliott Wave? ›
Award-winning analyst Chris Carolan teaches you how to use his favorite three key technical indicators to spot trends and confirm your Elliott wave analysis — Relative Strength Index (RSI), Jurik RSX and Keltner channels.
Is Elliott Wave trading profitable? ›
The Elliott Wave is coined on the idea that financial markets move in repetitive cycles. Investors can correctly determine where the market will go by identifying these patterns. This is the essence of profitable trading using the Elliott Waves, making the model unique and appealing to traders.
What is the logic behind Elliott Wave Theory? ›
The theory
Elliott believed that every action is followed by a reaction. Thus, for every impulsive move, there will be a corrective one. The first five waves form the impulsive move, moving in the direction of the main trend. The subsequent three waves provide the corrective waves.
What are the disadvantages of Elliott Wave Theory? ›
Reliance on Historical Data. The Elliott Wave Theory relies heavily on historical data to identify wave patterns and predict future price movements. However, market conditions and dynamics can change over time, which can make historical data less relevant for predicting future price movements.
What is the best software for Elliott wave analysis? ›
SWAT. SWAT is one of the leading programs that you can use to trade with Elliott Wave theory. This theory can be used by traders to spot large price movements in the market and enter positions before others.
How to master Elliott Wave? ›
To use the theory in everyday trading, a trader might identify an upward-trending impulse wave, go long and then sell or short the position as the pattern completes five waves and a reversal is imminent.
Where the impulse wave had a general structure count of 5-3-5-3-5, the ending diagonal has a structure count of 3-3-3-3-3. All five of the waves of an ending diagonal break down to only three waves each, indicating exhaustion of the larger degree trend.
What is Eliot trading strategy? ›
The strategy is to trade impulse waves. In the 5-wave impulse pattern, three waves are with the trend, and two are against it. Among these three impulsive waves, the ideal wave to catch is wave number 3. Because this wave is usually the strongest among the three impulse waves, it significantly reduces the trade's risk.
What is Elliott Wave Fibonacci trading strategy? ›
Elliot wave theory is a price action technique for identifying precise points where the price is most likely to move, it also helps to identify the reversal and retracement points in advance.
How reliable is the Elliott wave? ›
The success rate of Elliott Wave trading is not proven to be more than a 50/50 chance of a profitable trade. The subjective nature of the principles means any mathematical testing is impossible.
What is the chart pattern Elliott wave indicator? ›
The Chart Pattern Elliott Wave indicator is configured to recognize the most common wave patterns, which are built according to the following rules: Impulse (Motive wave): Wave structure: 5-3-5-3-5. Wave 2 does not retrace more than 100% of the length of wave 1.
What is the best time frame to use Elliott Wave? ›
So, there is no single “best” timeframe that works for all markets or all traders. So, if you like longer-term trades (weeks, months, years), a daily, weekly, or monthly wave count will likely work best for you as a starting point to determine the longer-term wave count context.
How do you use Elliott Wave indicator Tradingview? ›
This script is made to identify Elliot Waves by setting a zigzag line as principal source, it identifies patterns with the most common rules, in the chart you will see a number in each wave detected, a wave could have the characteristics to be two different waves so it will be plotted the options that could be, To ...
What is the Elliott Wave scalping strategy? ›
Elliott Wave theory is based on the idea that market prices move in cycles of five waves in the direction of the main trend, and three waves in the opposite direction. These waves reflect the collective psychology of the market participants, and can be observed at any time frame and any market.
