Elliott Wave Theory and Strategies
1. Basic Components of Elliott Wave
- Impulse Waves: Consist of five waves (1, 2, 3, 4, 5) moving in the market's primary direction.
- Corrective Waves: Typically consist of three waves (A, B, C) that move against the primary trend.
- The general cycle follows a five-wave impulsive move followed by a three-wave correction.
2. Rules of Elliott Waves
- Wave 2 never retraces more than 100% of wave 1.
- Wave 3 is typically the longest and strongest and is never the shortest.
- Wave 4 does not enter the price territory of wave 1.
3. Types of Waves
- Impulse Waves: Move in the direction of the main trend (five waves).
- Diagonal Waves: Similar to impulse but more angled.
- Flat Waves: Occur when the market consolidates horizontally.
- Triangles: Consist of 5 corrective waves, usually forming before the end of a trend.
4. Corrective Wave Patterns
- Zigzag: A simple correction pattern with three waves.
- Flats: A corrective pattern where the waves move horizontally.
- Triangles: A five-wave corrective structure forming a triangle.
5. Elliott Wave Trading Strategies
- Identifying Wave Start and End: Use trendlines to mark wave starts and ends.
- Combining with Fibonacci: Use Fibonacci levels to confirm wave retracements and
extensions.
- Trade With Main Trend: Enter buy positions during upward impulsive waves; sell during
downward impulsive waves.
- Patience is Key: Elliott wave patterns take time to form, so patience is crucial.
- Wave 3 Strategy: After identifying waves 1 and 2, enter the trade at the start of wave 3.
- ABC Correction: After an impulse wave completes, trade during the corrective ABC phase
by entering at wave B.
