Table of Contents:

  1. Start HERE!
  2. Chart Indicators
  3. Degrees Defined
  4. Elliot Waves
  5. Entry/Exit Strategies
  6. Fibonacci is the “Key”
  7. Money Management
  8. Retracements & Projections
  9. Step-by-Step Trading
  10. Trading Chaos
Page last updated: January 18, 2017 @ 23:28

Elliot Waves

This is by no means everything there is to know about Elliot Waves.  But, based on my experience (of 20 years of trading), this is all one really needs to know to successfully trade using Elliot Waves.  Yes there are X waves and Y waves and “who the hell knows” waves, so if you start using them and find yourself lost, skip that market and use one that does work.

First some simple Elliott Wave rules…

  • Markets trade in waves of threes and fives.
  • Impulsive markets, those making higher highs and higher lows or lower lows and lower highs, trade in 5 waves.
  • Corrective markets, those trending sideways, trade in 3 waves; almost all the time.
  • Waves 1, 3 and 5 are impulsive waves.  Waves 2 and 4 are corrective waves.
  • Waves 1, 3, and 5 are themselves composed of smaller 5 wave structures.
  • Waves 2 and 4 are also composed of smaller 3 wave structures.
  • After every five wave impulsive structure, a minimum of a three wave corrective structure is expected.
  • Wave 2 cannot exceed the beginning of wave 1 and wave 4 should not (but it can, a bit) trade into the end of a wave 1.
  • Wave 3 cannot be the shortest of the 3 impulsive waves (1, 3, and 5).

Retracement3Typical Impulsive 1-5 Wave with a
Common ABC Retracement

 

Retracement2“Wave C Failure” ABC Retracement

 

Retracement1Expanding Triangle ABC Retracement

 

Retracement4Contracting Triangle ABC Retracement
(Common Retracement of a Wave 2)

 

Wave4ABCDETypical Wave 4 ABCDE Retracement

 

Wave4ABCDEType2Type Two Wave 4 ABCDE Retracement

 

Triangle TypesAdditional Triangle Types

Now check out Fibonacci then come back…

Each wave in an Elliott Wave pattern has a relationship with other waves of similar degree.  This relationship allows a certain level of high probability predictions to be made as to the price level and reversal TIME of future waves.

For instance, here are a few based on price ranges:

    • Wave 2’s usually retrace 50% or 61.8% of the price range of wave 1.
    • Wave 3’s are usually 162% or 262% of the price range of wave 2.
    • Wave 3’s are usually 100% or 162% or 262% of the price range of wave 1.
    • Wave 4’s are usually 100% or 162% of the price range of wave 2.
    • Wave 4’s usually retrace 38.2% or 50% of the price range of wave 3.
    • Wave 4’s also usually retrace 38.2% or 50% of the price range of waves 1 through 3.
    • Wave 5’s are usually 127% or 162% of the price range of wave 4.
    • Wave 5’s are also usually 100% or 162% of the price range of wave 1.
    • Wave 5’s are also usually 38.2% or 61.8% or 100% of the price range of waves 1 through 3.

The same type of thing can be said for the relationships between the amount of TIME a particular wave takes to complete.

Corrective waves usually do not complete prior to 38.2% of the TIME it took for the wave it is correcting.

I’m sure you noticed above where I outlined the price relationships between the waves that waves 3, 4 and 5 could have up to three different relationships but waves 1 and 2 seemed to be left out.  That is because as the wave structure builds, more and more information can be gathered from previous price levels to make more accurate future predictions.  When wave 1 is building, there is no previous information to base a prediction on and wave 2 can only be predicted based on the information provided by wave 1.

But there is more….

Waves themselves are composed of smaller waves where these relationships exist as well.  As I outlined earlier, waves 1, 3, and 5 are made up of smaller 5 wave structures and waves 2 and 4 are made up of smaller 3 wave structures.

ElliotWaveStructure

Now continue to my Step by Step Trading section.

-=Daedalus=-

AKA Wolfgang M. Bentz III

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