This is
probably what you all have been waiting for - drumroll please - using the
Elliott Wave Theory in trading! In this section, we will look at some setups
and apply our knowledge of Elliott Wave to determine entry, stop loss, and exit
points. Let's get it on!
Hypothetical, will-most-probably-be-right
scenario:
Let's say
you wanted to begin your wave count. You see that price seems to have bottomed
out and has began a new move upwards. Using your knowledge of Elliott Wave, you
label this move up as Wave 1 and the retracement as Wave 2.
In order to find a good entry point, you head back to the School
of Pipsology to find out which of the three cardinal rules and guidelines you
could apply. Here's what you found out:
·
Rule Number 2: Wave 2 can NEVER go beyond the start of Wave 1
·
Waves 2 and 4 frequently bounce off Fibonacci retracement levels
So, using your superior Elliott Waving trading
skillz, you decide to pop the Fibonacci
tool to see if price is at
a Fib level. Holy mama! Price is just chillin' like ice cream fillin' around
the 50% level. Hmm, this could be the start of Wave 3, which is a very strong
buy signal.
Since
you're a smart trader, you also take your stop into consideration.
Cardinal
rule number 2 states that Wave 2 can never go beyond the start of Wave 1 so you
set your stop below the former lows.
If price
retraces more than 100% of Wave 1, then your wave count is wrong.
Let's see
what happens next...
Your
Elliott Wave analysis paid off and you caught a huge upward move! You go to
Vegas (or Macau), blow all your profits on roulette, and end right back where
you started. Lucky for you we have another hypothetical scenario where you can
earn imaginary money again...
Scenario 2:
This
time, let's use your knowledge on corrective waves patterns to grab those pips.
You begin
counting the waves on a downtrend and you notice that the ABC corrective waves
are moving sideways. Hmm, is this a flat formation in the works? This means
that price may just begin a new impulse wave once Wave C ends.
Trusting
your Elliott Wave skills, you go ahead and sell at market in hopes of catching
a new impulse wave.
You place
your stop just a couple of pips above the start of Wave 4 just incase your wave
count is wrong.
Because
we like happy endings, your trade idea works out and nets you a couple thousand
pips on this day, which is not always the case.
You have
also learned your lesson this time around so you skip Vegas and decide to use
your profits to grow your trading capital instead.
Learn from your fellow traders and discuss Elliott Waves.
