As the title says, the aim of this article is for readers to come away after reading the article better informed and take the information and use it in their daily trading and become better informed applying the Elliott Wave Principle.
If you are new to the principle or have a passing interest in the Elliott Wave Principle, then I am sure that the information found in this article should benefit readers greatly.
Much has been written over the years about the principle, and it really has not changed that much since the days that Frost and Prechter first wrote the book Elliott Wave Principle I believe in 1978.
Although published a long time ago, that book is still considered the "bible" of the Elliott Wave Principle, and I suggest anyone that is seriously interested in the Elliott Wave Principle should try to get themselves a copy.
Although if you click on this link, you can download yourselves a copy in a PDF format from Scribd.com. http://www.scribd.com/doc/7381626/The-Elliott-Waves-Principles-Frost-AJ-PrechterRobert-R
Elliott Wave is considered to be extremely complicated, too much ambiguity and simply put many think of it as some sort of voodoo that only a selective few can decipher.
Well I hope over the next few pages to change that way of thinking, and make it easy for readers to apply the principle and to show you that Elliott Wave is far easier than many are lead to be believe.
It's not some voodoo system; it's a very simple system that anyone that can count to 3 and 5 can use.
Simply put if you can't count to 3 or 5, then yes its likely to be very difficult for you to understand.
My approach to using Elliott Wave is likely to be far different to the academics that have learn the theory but never actually used it in real life trading conditions, it's my opinion that unless you are a skilled and seasoned trader, you simply will never understand its quirks and use the theory to its maximum potential and understand it in great detail.
Being a full time professional and using the Elliott Wave Principle daily and finding ideas for members is where experience can only be taught or learn from someone who has many years watching, breathing the waves as they involved over time.
That part you will never learn from a course or book, that will only come from time spent watching 100s of hours screen watching.
Over the years I have honed down the theory to keep it as basic as possible, no fancy corrections or letters, just a basic setup that even the traders with a little knowledge will be able to understand.
I have been working with clients to improve their knowledge, but I have shown them my way of thinking.
I am skilled veteran using the principle, and I was taught to be the best at something you need to learn from the best.
Some things you can learn in books, other things you can only learn from real life situations where it's important to react instinctively once you suspect something with your idea.
The great thing about the Elliott Wave Principle is that is has built in stops, so you don't have to think, you already know your loss and "get out point".
I don't know of any other system that gives you that flexibility, we don't need to think, we already know our loss point before we trade.
That's the important part, knowing where you are wrong before you engage with the trade.
The setup using a 5 wave move
This involves finding a 5 wave move, or a move that is close to completing a 5 wave move that is the important part, we want to find a setup where we can use a 5 wave move. As that is the core basis of the trade.
Let's look at an example.
What do you initially see?
To an untrained eye that is just a load of squiggles and waves, but to a skilled Elliottician it's a trade setup that potentially is a profit making trade.
In fact this was one such profit making pair that I posted for members, before it reversed.
Hopefully you can see a 5 wave advance from the 13th Jan 2012 lows up into the highs made on 21st March.
Don't see it; ok what about if I did this?
The core basis of the theory is that we see 5 waves in the direction of the larger trend, so in this case the trend was up, and we need to see a 5 wave move for an impulsive wave.
So waves 1, 3 and 5 are the trending waves.
Wave 2 and 4 are the corrective waves.
Each individual impulsive wave consists of 5 smaller waves.
So let's count those as well, remember they will be a smaller degree as they are inside the larger 5 wave move.
So there we have a 5 wave advance.
How can we be sure we have a 5 wave labeled correctly? Well there are some guidelines to the move and 3 rules, yes 3 simple rules.
Rules
- Wave 3 must never be the shortest impulsive wave.
- Wave 2 can never retrace 100% of wave 1.
- Wave 4 cant overlap wave 1.
Guidelines
- Wave 3 is generally the longest impulse wave of the 5 wave sequence.
- Wave 4 is generally a flat to sideways choppy move that tends to correct in time as opposed to price.
- Wave 2 is generally a sharp decline or a zig zag correction.
Fibonacci Guidelines
- Wave 3 is usually a 1.618 or 2.618 extension of wave 1
- Wave 4 generally retraces between 38.2% of wave 3 if it's a 1.618 extension or 23.6% if a 2.618 extension or in between.
- Wave 5 is usually a .618 of wave 1 or equal to wave 1.
- Wave 2 will generally retrace between 50% and 78.6% of wave 1.
So let's take those rules and guidelines to the last chart and see how many we can tick of the list.
So that's virtually all the guidelines and Fibonacci guidelines met.
Notice that each impulse wave has 5 smaller waves as well, and before it's completed it has all the waves in check.
So that gives us confidence that we are on the right track, as seen in this chart before the reversal
It's the same chart I used just before I called the top in this market for members, it has some extra fibbo measurements, and I have added the corrective labels for waves 2 and 4, but you can see the same wave setup is there as we just labeled. I have just added a few extra labels and some trend channeling techniques, although they are not absolutely necessary, what I have just shown you is a simple setup that anyone can label with a little practice.
I wrote this on March 21st march 2012
"If this is a small ED then we should be about to reverse strongly from here"
I labeled the chart above in real time as it was involving, and readers of this article can do exactly the same, all it needs is some practice and spend a little time counting waves and looking for obvious patterns.
There are some extra little tricks we can use just to help us find a high point to a 5 wave advance. But the core of the trade is as simple as I have shown, no matter what degree, once a 5 wave move is finished it will need to correct, so that is what we are use to trade and find a simple set up to trade.
It does not have to be complicated, well not the way I teach Elliott Wave.
Let's look at another chart and use the same rules and guidelines and find a setup.
Ok what do you see?
Let's zoom in closer.
What about if I was to show some labels?
Notice the 5 wave decline from the Aug 2011 highs into the Oct 2011 lows.
Do you remember that fear as the markets were crashing into the Oct lows?
I do and I was looking for a major low and I was seeing many other markets setting up the same setup as ending a 5 wave decline.
So as the world was throwing out the kitchen sink and selling whatever it could, we were busy trying to find a low as the end of a 5 wave decline looked to be setting up.
In fact that did turn out to be a major low at the Oct 2011 lows.
So trusting Elliott and counting correctly keep us away from all the panic and noise that was coming out at the time.
Just like it stopped up us buying into a rally that was going to go up forever as most traders were bullish at the top of a 5 wave move in the last example (GBPJPY) we sold the highs around 133, again we trusted Elliott and our work.
Simple examples of finding a 5 wave move and buying a low in the Canadian $ and selling the highs in the GBPJPY.
You can use the Elliott Wave Principle in virtually any market; I track many markets and use the same techniques, from US stocks, to the US stock markets, European Stocks markets, Commodities, forex, and US bonds.
As long as it has liquidity we can use the Elliott Wave Principle to count the waves left behind and use that for predicting the future based off the patterns we know to be part of the Elliott Wave Theory.
This is just the top of the surface, to the actual principle, but just looking for 5 wave moves can help setup potential trades and capture lows and highs by going against the crowd.
I have starting teaching my work to others and it's been well received so far, and many clients have welcomed my approach to teaching a simple approach to what many traders believe to a difficult system to master.
It's only a difficult as someone teaching it, once you can start to find patterns on a regular basis, you can use those to find trades, there are many more ideas and setups, and far too many to write at length in these pages, but I do go into great detail in the one-one training that I have been offering clients.
Depending on your experience I am tailoring lessons to help improve your skills as an Elliottican, and showing tricks and using techniques I have learnt over the years.
If you are interested in becoming a better Elliottician, or you want to learn the principle from a skilled Elliottician, one that finds trades each and every day for his members. Then you can take advantage of a special offer we are currently running.
Any client that purchases 3 sessions or more will have full access to the main website at www.wavepatterntraders.com for 2 months free, you will get to follow my work and watch as I put the techniques I teach to work and find trades for members.
2 full months to the main website is $100, so in effect you would be paying $150 for your lessons if you include the price of the 2 free months.
Being a member gives you access to my work, so it's a learning process as well as a money making process.
If you are interested in taking your skills to the next level, then details can be found here: http://wavepatterntraders.blogspot.com/2012/04/elliott-wave-training.html
You can also view my free work at the BlogSpot site as well, to give you an idea of the level of work you can expect to learn.
Until next time,
Have a profitable week ahead.
