Elliott Wave Principle
The Elliott wave principle, was discovered by Ralph Nelson Elliott and it is a technical analysis tool of Forex price movement that is based on sentiment of market participants. The Elliott wave principle works perfectly with price trends with respect to highs and lows of price, resistance, and support, impulse and corrective price movement for a currency pair.
However, Ralph Elliott highlights the fact that market price movement in a wave pattern, is determined by the psychology of market participants. Market price hovers between impulsive wave and corrective wave. There are five wave sequence to the Elliott principle; wave 1, 2 , 3, 4 and 5. Wave 1, 3 and 5 are the impulsive waves while wave 2 and 4 are the corrective waves.
An impulsive wave is usually longer than the previous wave. While corrective waves are normally shorter in length than previous waves.
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ELLIOTT WAVE PRINCIPLE
Elliott Wave Structure
Technically, the Elliott wave structure is separated into two. We have the five-wave and the three-wave structure. The first phase which is the five wave structure is categorized as the impulsive or motive phase while the three wave structure is categorized as the corrective phase.
Moreover, the impulsive wave structure always align with the prevailing trend while the corrective wave aligns with the retracement of that move and it moves against the trend. The impulse wave takes on a 5-wave sequence while the corrective wave takes on a 3-wave sequence.
Impulse waves form quickly, especially in volatile markets or when a news is just released. The impulse waves are longer and almost vertical in a structure on the chart. Corrective waves form slowly, mostly in the form of consolidation or range. You can identify wave 1 by finding the first impulsive wave that forms at the peak or at the base of the most recent long wave. Once you are able to identify wave 1, you will be able to count the waves when the market forms a trend.
The entire body of waves 1, 2, 3, 4 and 5 when completed will form the major impulsive wave, (meaning one major impulsive wave must have three minor impulsive waves 1, 3, and 5).
Characteristics Of Each Wave
1. Wave 1: This wave mostly go unnoticed at the inception of the wave.
2. Wave 2: It corrects/reverses/retrace wave 1. Wave 2 never extends beyond the starting point of wave 1. Prices also do not retrace beyond 61.8% Fibonacci level. It never retraces beyond 100% of wave 1. Most common retracement point for wave 2 is at the 50% Fibonacci level.
3. Wave 3: Here is the largest and the most powerful wave amongst the three impulse waves. Wave 1 or 5 can be longer than wave 3, but both waves 1 and 5 cannot be longer than wave 3 at the same time. It confirms the market sentiment and direction of price.
4. Wave 4: It corrects wave 3. Wave 4 usually retraces less than 38.2% of wave three. It can never overlap wave 1. The low of wave 4 cannot drop below the high of wave 1.
5. Wave 5: This wave is the last wave in the direction of the market trend. It is used to identify indicator divergence.
6. Wave A: It is an impulsive wave and it is also a corrective wave for wave 5.
7. Wave B: This is a corrective wave for wave A.
8. Wave C: This wave is an impulsive wave and it is also a corrective wave for wave B.
9. Wave A, B and C represents the trend continuation for wave 1 to 5.
How To Apply Elliott Wave To Trading
-Loading the Heiken Ashi indicator on your MT4 chart to filter noise in price movement.
-Looking out for a good entry point for your wave count, especially when price appears to have bottomed out or is at the peak is important.
-If you enter your trade at wave 2, then placing your stop-loss at an area beyond 100% of wave 1 is key (note that your wave count is wrong if wave 2 extends its retracement beyond 100% of wave 1).
-If you enter your trade at wave 4, then placing your stop-loss at an area beyond 38,2% of wave 3 is vital (note that your wave count is wrong if wave 4 extends its retracement excessively beyond 38.2% of wave 3 or beyond the swing side of wave 1).
-Wave 3 is usually longer than wave 1, and entering your trade at wave 2 is most ideal.
Elliott Wave And Fibonacci Retracement or Extension
ELLIOTT WAVE SIGNALS
EURUSD: DAILY TF CHART (2ND JULY 2022 20:15 GMT):
Technically, EURUSD pair has been trending down since September 2021.
With the formation of a Bearish Triangle on the Daily time frame, we will expect price to continue in the current Bearish trend.
A price break below 1.03450 will signal the continuation of Downtrend price movement.
Break above 1.06050 will signal Price Range continuation.
While a break above 1.07900 will signal the start of a Trend Retracement or Reversal.
EURUSD: 30 MINS CHART (30 MAR 2019 15:34 GMT)
GBPUSD: DAILY (25 MAR 2019 00:14 GMT)
EURUSD: DAILY (24 MAR 2019 23:59 GMT)
EURUSD: DAILY (29 DEC 2018 16:39 GMT)
EURUSD: WEEKLY (29 DEC 2018 13:26 GMT)
EURUSD: MONTHLY (29 DEC 2018 11:14 GMT)
AUDCHF: (THUR 27 SEP 2018 06:30 GMT)
EURCAD: (WED 26 SEP 2018 22:10 GMT)
NZDUSD: (TUE 25 SEP 2018 21:30 GMT)
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6 Replies to “ELLIOTT WAVE PRINCIPLE”
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