Elliott Wave – Trading Strategies – 26 January 2022

Introduction to Elliott Wave Theory and Elliott Wave Pattern

Ralph Nelson Elliott was one of the first people to believe that he could predict the stock market by studying recurring price patterns in a price series. Elliott wave theory states that wave patterns of different scales repeat and overlap each other, creating complex wave patterns. If the harmonic pattern focuses squarely on the short five-point patterns, the wave theory, developed by Ralph Nelson Elliott, describes how the financial market evolves to meet equilibrium with recurring wave patterns, fractal equilibrium waves. The advantage of Elliott Wave Theory is that it is comprehensive as the theory provides multiple trading entries in different market conditions. Using Elliott Wave Theory, traders can perform both momentum trading and retracement trading. A disadvantage of Elliott Wave Theory is that it is more complex compared to other trading techniques. In addition, there are still some loose ends in detecting Elliott wave patterns. For this reason, many traders are highly critical of the lack of scientific methods for Elliott Wave counting.

The Elliott Wave Theory has received a lot of attention from many traders and investors for several decades. Elliott Wave Theory is a useful technique for dealing with the financial market with the dominant balanced fractal wave process. For the financial market with a strong equilibrium wave process (the second, third and fourth columns in the price pattern table), traders should use an alternative methodology on Elliott wave techniques because the Elliott waves theory is not intended to deal with the wave process. Seasonal or other cyclical fluctuations can be better handled with other techniques. For example, seasonal exponential smoothing, Fourier transform, principal component analysis, or wavelet transform might do better for such a case. Some literature review and empirical research can yield useful insight into which market trader can best trade with Elliott Wave Theory. In our book we will introduce the basics of wave theory. At the same time, we will introduce a Pattern and Pattern approach towards more scientific wave counting for traders.

The wave theory states that crowd or social behavior follows certain wave patterns that repeat themselves. Wave theory identifies two wave patterns. It is an impulse and corrective wave. Often, the term motive wave is used interchangeably with motive wave. Two identical terms. Both the impulse and the impulsive wave advance during the phase of the main trend while the corrective wave advances during the corrective phase against the main trend. In general, an impulse wave has a five-wave structure, while a corrective wave has a three-wave structure (Fig. 5-1). It is important to understand that these wave structures can bypass the smaller wave structure to form a larger wave cycle (Fig. 5-2). Elliott Wave Theory is useful in identifying a trend market and a correction market. Since the Elliott Wave Theory already assumes that the price is progressing in the form of a fractal wave, it does not suffer from price lag like technical indicators based on the smoothing algorithm.

Figure 5-1: Illustrative example of five motive waves and three corrective waves.

Elliott wave and fractal wave

A fractal wave is a general analogue theory that describes the similar structure on an extended, but limited, scale in the form of a wave. In short, a fractal wave is a general term or a scientific term to describe a recurring wave pattern such as the Elliott wave. Elliott wave is a more specific application of the fractal wave in the field of technical analysis. The recurring patterns in the fractal wave are directly reflected in the Elliott wave as the impulsive and corrective wave patterns are more widely repeated. In short, many smaller impulse waves and corrective waves are combined to form a larger impulse wave and a larger corrective wave. This repeats forever as expected in a fractal wave. You may ask whether it is important to study the fractal wave before studying the Elliott wave pattern? In fact, the answer is that most people who understand Elliott Wave Theory already understand the fractal wave in detail. Hence, if you are new, you will become familiar with fractal waves as well as Elliott wave theory.

Figure 5-2: Corrective waves and a smaller impulse form more complex wave patterns.

Practical way to trade using Elliott Wave Theory and Elliott Wave Pattern

The wave principle is a fairly general theory. Since you will learn practical knowledge in the workplace after your school, we also need to develop practical knowledge after we have learned the wave principle as well. People who try to use the raw wave principle may begin to be very disappointed with its complexity and initially frustrating results. To apply the wave principle in practice, we can have two alternative methods. One is the pattern approach and the other is the waveform counting (or labeling) approach. In the pattern approach, we can create Elliott wave patterns with specific ratio combinations based on the wave principle. After we have figured out the plausible proportions of each pattern, we can test the pattern through the data. We can also learn how to apply each pattern through the data as well.

In the wave counting approach, you will start with the current graph and try to name the minor and major cycles in your chart according to the wave principle. The result is to try to name each crest and trough as accurately as possible according to the wave principle. Wave counting always includes interfering wave counting, and is open to the practitioner’s objectivity. Compared to the pattern approach, it is difficult to test the wave counting approach to test its trading results in real world trading for two reasons. Firstly, getting agreement on the wave cycle in forex and stock market is difficult among wave calculating practitioners. Second, graph data is always unique when you try to fit multiple overlapping wave cycles into a wave count. Hence, we are unable to copy and paste our previous wave calculation to the current market data because it simply does not fit. If we have to create a unique count each time, there is a huge chance for subjectivity. In the pattern approach, once you present the set percentage set, no matter who used the patterns, you will get the signal of the pattern at the same time as long as you are using the same data with other traders. The pattern’s approach is closer to a mechanical signal than every trader is looking for.

Elliott wave trend

The Elliott wave trend is designed to calculate scientific waves. This tool focuses on demystifying classic Elliott Wave counting using guidelines from a pattern and pattern approach. When you do this, Elliott Wave Trend first provides a model for your wave calculation. Second, it provides Wave Structural Score to help identify the exact wave formation. It provides both the structural result of the impulse wave and the degree of the corrective wave structure. Structural evaluation is the evaluation that shows how good the Elliott Wave pattern is. 100% means that it is a good wave pattern. A score of less than 80% or negative values ​​mean that you may have some errors in your analysis. The Elliott wave direction will correct some obvious errors in your wave count if the counting goes against the three wave rules suggested by Ralph Elliott. Using the structural result of Wave, you can convert the Elliott Wave count into an Elliott wave pattern. To use the Elliott wave trend, it is best to have some basic knowledge of using Elliott Wave Theory. The good news is that Elliott Wave Trend is the exclusive Elliott Wave forex trading tool.

Elliott Wave Trend for MetaTrader 4

Elliott Wave Trend for MetaTrader 5

X3 Chart Pattern Scanner

X3 Chart Pattern Scanner is not a full Elliott Wave tool as you can trade with Harmonic Pattern, X3 Chart Pattern and Elliott Wave. The good thing is that the pattern detection process in X3 Chart Pattern Scanner is fully automatic. This is perhaps a suitable feature for many day traders who want to manage their trading and risk efficiently. Additionally, you can set and modify discoverable chart patterns from the entry page of the X3 Chart Pattern Scanner. Hence, it is a really great tool if you want to adjust your Eliott Wave pattern before trading. What’s better with X3 Chart Pattern Scanner? It is a non-repaint, non-lagging scanner. This means that it is easy to use. In addition, historical chart patterns can be used to directly test your trading strategy without providing resources for any complex testing software.

X3 Chart Patterns Scanner For MetaTrader 4

X3 Chart Patterns Scanner For MetaTrader 5

Elliott Wave Indicator For MetaTrader 4

Whether you use Elliott Wave Trend or X3 Chart Pattern Scanner, you can always add more tools to improve your Elliott Wave trading. Here is a list of tools that you can use with the Elliott Wave indicator.

Elliott Wave Indicator For MetaTrader 5

Whether you use Elliott Wave Trend or X3 Chart Pattern Scanner, you can always add more tools to improve your Elliott Wave trading. Here is a list of tools that you can use with the Elliott Wave indicator.

Articles on Elliott Wave Theory and Elliott Wave Pattern

Define the structure of the Elliott wave graph model, the harmonic model, and the X3 chart model

Introduction to wave theory

Scientific Wave Counting with Pattern and Pattern Approach

The structural result of an impulse wave and the structural result of a corrective wave

Elliott Wave Guidance Techniques

Books for Trading Elliott Waves

The Scientific Guide to Price Action and Pattern Trading (Trend, Cycle and Fractal Wave Wisdom)

The science of support, resistance, Fibonacci analysis, harmonic pattern, Elliott wave and X3 chart pattern (in forex and stock market trading)

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