• 141 days Could Crypto Overtake Traditional Investment?
  • 146 days Americans Still Quitting Jobs At Record Pace
  • 148 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 151 days Is The Dollar Too Strong?
  • 151 days Big Tech Disappoints Investors on Earnings Calls
  • 152 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 154 days China Is Quietly Trying To Distance Itself From Russia
  • 154 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 158 days Crypto Investors Won Big In 2021
  • 158 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 159 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 161 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 162 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 165 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 166 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 166 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 168 days Are NFTs About To Take Over Gaming?
  • 169 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 172 days What’s Causing Inflation In The United States?
  • 173 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

Wave 2 or B

Continuing my Elliott Wave series, I am going to be writing about the basics of Elliott Wave (EW). I want to keep this as simple as possible, because it is simple. The other objective I have for this series, is to make it relevant to trading. This is not for the academician, this is for the trader.

I will examine how EW analysis can be used to project turning points in the market

Entering a trade at the end of Wave 2 or B is one of my favorite setups. Wave 2 and Wave B are both corrective waves, and will therefore have the same structure. The only difference in the waves is whether they are part of an impulsive wave or a corrective wave. There are two hints that would give me an idea as to which wave I am looking at. First, I may be expecting a corrective wave because of the count preceding the setup. Secondly, if the wave that this counter-move is correcting was 3 waves, then I expect that I am looking at Wave B since W1 is always a 5 wave structure. Sometimes the time-frame is too large to see the wave structure.

Structure: Both W2 and Wave B are three wave structures. Usually they are a simple ABC correction. Sometimes the correction is so sharp that the structure is hard to visualize.

Retracement levels: 50%, 61.8%, 78.6%. I made the 61.8% retracement level bold because, in my experience, this level is the highest probability for a reversal. The other level I see reversing the market a lot is the 78.6% retracement, especially on shorter time-frame charts and lesser degree swings. When I say that I am buying on dips or selling on rallies, I will probably be using the 61.8% retracement level. Of course, as the market gets close to that level, I am looking for a completed pattern also (see chart below), and may have to go to a 1 minute chart to verify pattern completion. I would not take a W2 or Wave B trade unless a minimum 50% retracement has been made.

Limited Capital Exposure: When a trade is made at the end of Wave 2 or B, capital exposure is known. My stop is placed one tick (at most two in a volatile futures market) beyond the beginning of W1 or A. This was discussed in a previous lesson. Sometimes, if I see a close beyond the 78.6% retracement level, I will exit my trade, as it is no longer a high probability setup and the trend may continue. That's a judgment call.

W2/B Trade Setup: Here is a real example of a trade I remember taking. I remember almost being stopped out when I moved my stop to 1 tick below the W2, once I got profitable. I remember taking some profit at the 50 MA before moving my stop up. I was flat at the end of the day. Too bad! Look at that nice gap up the next day. But I'm almost always flat at the end of the day.

Wave 2 or B

My next lesson will discuss Wave 3

If you like what you see here, wait to see how MortiES's analysis can assist you in your everyday investing or trading strategy! Go ahead., Click on "Subscribe to MortiES Premium" and give it a try! I am offering a 30 day free trial period.

 

Back to homepage

Leave a comment

Leave a comment