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Become An Expert Elliott Wave Trader INSTANTLY (The Ultimate CHEAT SHEET) - YouTube
Channel: The Secret Mindset
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Every trader needs to answer four key questions!
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ā¢ What direction the price is trending?
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ā¢ How far is the trend likely to go?
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ā¢ Where can you enter a trade with the best
risk reward ratio?
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ā¢ And most importantly, at what point you
are definitely wrong?!
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Elliott Wave Theory answers all these questions.
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The Wave principle helps to:
ā¢ Spot high probability trade opportunities.
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ā¢ Improve the trade entry.
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ā¢ With a solid money management, including
stop losses and targets
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Today Iām sharing several crucial tips that
will definitely improve your trading, no matter
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if you use Elliott method or you simply decide
to use price action.
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So, if you could, like, subscribe to the channel,
and stick around for the full video.
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Write down the main Elliot Rules!
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Nothing is more important in Elliot Wave analysis
than respecting the Elliott wave rules.
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Each wave pattern has a distinct set of rules,
which have to be fulfilled in order to make
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the pattern valid.
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If certain requirements are not met, some
other pattern must be unfoldingā¦ simple
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as that.
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It is therefore very useful to write down
all Elliott wave rules, so that you can quickly
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check and confirm that your wave labeling
is indeed correct.
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Wave 2 never pulls back more than 100% of
wave 1, if it does this, the trend cannot
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be confirmed.
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Wave 3 cannot be the shortest of the 3 impulse
waves, when we see a third wave that is too
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short it means that it is not a correct wave
count.
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Therefore, the next waves remain part of the
third wave rather than forming waves 4 and
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5.
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Wave 4 cannot go below the price of Wave 1,
if wave point 4 breaks below the wave point
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1 it clearly tells us that this is not part
of the fourth wave, instead it carryās on
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within wave 3.
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Trade only in the direction of impulse waves
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Prices move in impulsive and corrective waves.
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Knowing which kind of wave is likely underway
currently and which type recent waves were,
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will help you forecast what the price is likely
to do next.
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An impulse wave is a large price move and
has associated trends.
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If itās an uptrend, it keeps reaching higher
prices because the upward moves are larger
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than the downward moves that occur in between
the large upward waves.
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Corrective waves are the smaller waves that
occur within a trend.
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For better results, you should trade in the
direction of the impulse waves because the
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price is making the largest moves in that
direction.
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Impulse waves provide a better chance of making
a large profit than corrective waves do.
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You should use corrective waves to enter into
a trend trade, in an attempt to capture the
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next big impulse wave.
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Buy during pullbacks or corrective waves during
uptrends, and ride the next impulse wave as
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it takes the price higher.
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Sell during corrective waves in a downtrend
to profit from the next impulse wave down.
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The idea of impulsive and corrective waves
is also used to determine when a trend is
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changing direction.
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If a market shows big moves upward with small
corrective waves in between and then a much
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larger downward move occurs, this signifies
the uptrend may be over.
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Since impulses occur in the trending direction,
a big downward move larger than prior corrective
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waves and as large as the upward impulse waves
indicates the trend is reversing.
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Use PROTECTIVE STOPS below Wave 2 and Wave
4
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The stop loss always been the key to trading,
this is the factor which will make you lose
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or make money.
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There are 2 particular rules that cannot be
violated within the Elliott wave model.
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Wave 2 cannot retrace more than wave 1.
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Wave 4 cannot enter the price territory of
wave 1.
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Using these rules, Elliott method will help
you placing optimal protective stops.
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For instance, when trading Wave 3, you will
know that Wave 2 cannot go below the low of
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Wave 1; this means that the best location
to place a stop-loss order will be below the
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low of Wave 1.
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Or, Wave 4 cannot overlap with Wave 1; this
means that when trading Wave 5, the best point
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to place a stop loss would be below the high
of Wave 1.
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The process is simple, you identify a possible
Elliot cycle, you immediately check the rules
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to be sure all conditions are met, you enter
during an impulsive wave and you place your
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protective stops accordingly.
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You can eliminate much of the confusion by
applying these rules and youāll also minimize
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your losses to a known amount.
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Learn to define the corrective structures
accurately
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So, the best trades happen if you can catch
an impulsive Wave early on.
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But in order to catch those waves, you need
to define the corrective structures accurately.
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According to Elliott, there are 21 corrective
ABC patterns ranging from simple to complex.
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You donāt have to memorize all 21 types
of corrective ABC patterns because they are
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just made up of three very simple easy-to-understand
formations.
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The first one is the Zig-Zag Formation.
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Zig-zag formations are very steep moves in
price that go against the predominant trend.
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Wave B is typically shortest in length compared
to Waves A and C.
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These zig-zag patterns can happen twice or
even three times in a correction.
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The second one is The Flat Formation.
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Flat formations are simple sideways corrective
waves.
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In flats, the lengths of the waves are GENERALLY
equal in length, with wave B reversing the
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wave A move and wave C undoing the wave B
move.
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And finally, The Triangle Formation.
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Triangle formations are corrective patterns
that are bound by either converging or diverging
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trend lines.
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Triangles are made up of 5-waves that move
against the trend in a sideways fashion.
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These triangles can be symmetrical, descending,
ascending, or expanding.
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Now, a lot of the pre-trade analysis has to
go into knowing what kind of corrective pattern
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is unfolding so that you know when it will
be complete.
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This will have a two-fold benefit of protecting
you from entering trades too early, as well
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as not missing the boat when price goes into
an impulsive trend continuation.
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Look for divergence at the end of corrective
waves
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If you followed my channel, you must have
noticed how often I use the word ādivergenceā,
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usually when Iām expecting a trend reversal.
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A divergence occurs when the price reaches
a new extreme, while the line of the indicator,
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does not.
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It means that despite the new high or low,
the current trend is exhausted and might be
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about to end soon.
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Oscillator indicators are the best tool to
spot a divergence.
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I personally prefer to add the Stochastic
or MACD histogram when Iām counting waves.
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Now, the easiest point from which you start
a wave count would be at a swing low or at
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the end of a correction.
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As a clue, corrections usually end in diagonals.
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At this point, divergences can be found on
momentum indicators, just like in this example.
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Learn the Relationship between Fibonacci Ratios
in Elliott Wave Patterns
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The application of Fibonacci ratios are an
integral part of Elliot Wave analysis.
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Combining The Elliott Wave structure with
Fibonacci offers high probability turning
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points and where the next price move will
likely terminate.
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Therefore, counting waves and applying the
appropriate Fibonacci levels is an essential
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step for every Elliott Wave trader.
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Here are the common relationships between
Elliot Wave and Fibonacci levels.
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It is important to write down or print these
levels, so that you know how price action
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is most likely play out.
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Wave 2 ā 50.0%, or 61.8% of Wave 1.
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Wave 3 ā 161.8%, 261.8% of Wave 1
Wave 4 ā 38.2%, 50.0%.
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61.8 of Wave 3
Wave 5 ā 100% of Wave 1 or 161.8% of Wave
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4.
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Projecting the end of Wave 3
If you donāt like using Fibonacci, you can
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use simple price action to trade and find
projections for Elliot Waves.
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To begin with, you can draw a channel as soon
as waves 1 and 2 are finished.
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Connect the origin of wave 1 and the end of
wave 2.
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Then draw a parallel line from the top of
wave 1.
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This channel is considered as an absolute
minimum target for the 3rd wave under development.
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If the 3rd wave canāt break through the
upper line or fails to reach it, then the
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trend is weak.
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Furthermore, the lower trend line of the channel
serves as a stop-loss.
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When this baseline gets broken, there is a
strong probability that wave 2 gets more complex,
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thus wave 3 has not begun yet.
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Keep in mind that wave 3 is normally the strongest
wave and often will go far beyond the upper
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trend line.
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Projecting the end of Wave 4
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As soon as wave 3 has finished you can draw
a channel connecting the end of wave 1 and
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wave 3 with a trend line and drawing a parallel
line from the end of wave 2.
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By doing this you can project a target for
wave 4.
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Keep in mind that normally the baseline from
wave 3 will be broken slightly by the price
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action of wave 4.
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If wave 4 doesnāt come near the baseline
at all, this is a sign of strong trend.
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So you draw a trend line from the beginning
of Wave 2 to the end of Wave 3.
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Project a parallel line off the end of Wave
2.
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You want to find out the end point of Wave
4, so that you can trade the next impulsive
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wave.
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Projecting the end of Wave 5 - Method 1
As soon as wave 4 has finished you can draw
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a channel connecting the end of wave 2 and
wave 4 with a trend line and draw a parallel
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line from the end of wave 3 and project upward
to wave 5.
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This is your target for wave 5.
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This would be for a normal wave 5.
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An extended wave 5 would push higher.
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It the price fails to hit the projected trend
line to wave 5 then the market is weak and
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you should look for a sell-off.
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Projecting the end of Wave 5 - Method 2
Most of the time, wave 3 is the strongest
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wave showing a very fast acceleration relative
to wave 1 and 5.
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If wave 3 indeed shows a nearly vertical rise
or decline, then draw a trend line-connecting
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wave 2 and 4 and draw a parallel line from
wave 1.
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This parallel line will cut through wave 3
and will target wave 5.
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From my experience, this is a very valuable
channel.
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Liquidity is essential for consistent Elliott
Wave behavior
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Liquid markets are, by definition, traded
by a large crowd of traders.
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Although it is nearly impossible to determine
what a single trader will do, it is possible
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to estimate a statistical probability of what
a large crowd of traders will do.
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Mass crowd psychology comes into play, the
result of mass human emotion as it swings
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from fear to hope to greed, and back again.
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Liquidity is essential for consistent Elliott
Wave behavior.
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Stocks such as those on the S&P or NASDAQ
and currencies, for example, show strong and
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dependable Elliott Wave patterns.
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These markets are driven by mass psychology,
or human emotion.
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They are truly liquid, driven by supply and
demand.
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Conversely, thinly traded markets do not show
consistent Elliott behavior.
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This is also the reason why markets that are
manipulated by a few large traders, institutions
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or governments are often poor candidates for
Elliott analysis.
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So be careful on which markets you decide
to apply your Elliot wave analysis.
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If you found value and learned something new,
leave us a like.
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This way weāll know if you'd like to see
more videos like this one.
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And check out our academy program if you want
to further level up your trading.
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Until next time.
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