How to identify high profit elliott wave trades in real time

35 Counting Waves 48 Detecting Elliott Wave Patterns and C Wave Patterns 51 Terms 51 Symbols of Wave Degree 53 Chapter 4 Logic of Counting Waves ..... 4 How To Identify High-Profit Ellio

Basics of Counting Waves

Market activity resembles the behavior of water waves, where momentum unifies individual elements in a common direction Just as waves consist of peaks and troughs, market fluctuations experience periods of calm followed by bursts of activity triggered by new information This surge continues until it becomes unsustainable, leading to a phase of stagnation or countertrends, akin to the troughs between waves, often influenced by profit-taking.

Ralph Nelson Elliott's theory on market behavior, developed during his groundbreaking work from the late 1920s to the 1940s, describes the price waves that illustrate the ebb and flow of market activity.

2 How To Identify High-Profit Elliott Wave Trades in Real Time

Simply, a wave is seen as one constant direction in price-until it either stops and goes sideways or the direction totally changes.

The next wave (wave 2) goes in the opposite direction In this case, wave 2 is going down.

If you could see more detail of wave 1, you would see that it is made up of smaller waves—in this case five.

This wave (wave 1) is an upward moving wave.

Wave 2 consists of three smaller waves When any wave is made up of three smaller waves, each wave is given a letter, in this case a = 1, b = 2, c = 3.

Or wave 1 could be made up of only three smaller waves If the wave consists of only three waves, it is marked as wave A or wave a.

If wave 1 were made up of only three waves, then wave 2 would always be marked as wave B or wave b.

In this instance, the second wave is going sideways A sideways price area is a wave and must be counted.

If you could see more detail of the sideways price movement, you could see that it is made up of smaller waves.

Wave 3 is made up of five smaller waves.

Wave B ends, and wave C follows! Wave C usually consists of five waves.

Wave 4 is made up of three waves (the same as wave 2)

When wave 5 ends, the waves are then counted as one wave At this stage, a movement (market correction) opposite the trend is expected.

6 How To identify High-Profit Elliott Wave Trades in Real Time

Midpoint Method of Wave Counting

The midpoint method offers an alternative approach to counting waves by utilizing the midpoint of the daily range to smooth data This technique provides a single data point each day, enhancing the visibility of potential wave patterns.

The midpoint method has a significant limitation in its inability to capture all the nuances of a C wave Nevertheless, when paired with detailed daily charts, it can provide valuable insights into complex trading scenarios.

A single line connects the middle of each day's range.

Elliott Wave Principles

Elliott Wave Theory posits that market movements follow a fundamental pattern consisting of five upward waves and three downward waves, creating a complete cycle of eight waves The five upward waves, known as impulsive waves, align with the prevailing trend, while the three downward waves, referred to as corrective waves, represent a price reaction against that trend Additionally, a sideways market is classified as corrective.

Most market analysis is concerned with the 80 percent of the time that the market is in a corrective state.

An impulse wave represents a movement aligned with the major trend and must adhere to specific rules; failure to do so classifies the wave as a correction, even if it moves in the same direction as the trend Understanding these rules is crucial to accurately distinguishing between a running correction and an impulse wave.

The following rules apply to impulse waves:

• Wave 1, wave 3 and wave 5 are trending

• Wave 2 and wave 4 are corrections

• Of wave 1, wave 3 and wave 5, wave 3 must not be the shortest

• Wave 2 can retrace up to 99 percent of wave 1

• Wave 4 may not retrace all of wave 3

• Wave 4 should not go into the price area of wave 2

(Sometimes it will pull back to the top of wave 1.)

• Wave 2 and wave 4 must display alternation in as many ways as possible

The structure of an impulse wave is illustrated here.

• Wave 1, wave 3 and wave 5 are trending

• Wave 2 and wave 4 are corrections

• Wave 4 does not go into the price area of wave 2

• Of wave 1, wave 3 and wave 5, wave 3 is not the shortest

• Wave 2 and wave 4 display alternation

To determine whether a wave belongs to an impulse or corrective framework, observe key visual indicators that can quickly reveal its appropriate classification, as demonstrated in the accompanying diagrams.

In an impulsive sequence, it is essential for wave 2 and wave 4 to exhibit distinct characteristics This means that these waves should differ in multiple aspects, or at the very least, in one significant way.

Alternation occurs between wave 2 and wave 4 as either price, time or pattern type.

• Price: Wave 2 when compared to wave 4 may be obviously smaller/larger in price

• Time: Wave 2 when compared to wave 4 may take much more/less time

• Pattern: Wave 2 may be a simple ABC Wave 4 could be a more complex A B C or even a fourth wave triangle Wave 2 could be a flat Wave 4 could be a zigzag or vice versa

The following diagrams illustrate various forms of alternation.

In this diagram, there is alternation between wave 2 and wave 4 in both price and pattern

Wave 2 retraces more of wave 1 than wave 4

In this diagram, wave 2 and wave 4 display alternation in price, pattern and time.

For a pattern to be impulsive, wave 2 and wave 4 must be noticeably different.

Wave 2 and wave 4 are too similar and show no alternation The complete wave sequence is corrective.

Monthly chart waves are significantly larger than those observed in intraday charts with two-hour time frames By analyzing a price chart, the varying degrees of each wave become apparent, revealing that some waves take up more time and price movement than others.

When analyzing small time frames, it's crucial to consolidate smaller waves into larger ones, such as grouping five-minute chart waves to form an hourly chart This process continues as hourly charts combine to create daily charts, and daily charts aggregate into monthly charts Historically, the data from a five-minute chart holds significantly less importance compared to that of a monthly chart, indicating that the five-minute chart operates on a much smaller degree than the monthly chart.

Accurately counting waves requires grouping waves of the same degree, which can be challenging due to their potential to expand in time or price while remaining of the same degree Corrections often complicate this process, making it easy to lose track of the count until the correction concludes, particularly in small time frames.

The rally from M to N was the same wave degree as the 1987 crash N to O.

The S&P chart on the following page shows that C wave patterns can be found on waves of the smallest degree possible.

In analyzing a price chart, it's evident that among the three impulse waves, one wave stands out as being longer than the others This longer wave is referred to as the extended wave.

Market psychology drives the extension of waves, as traders identify trends that, once widely recognized, lead to market stretching During this phase, counter-trend actions are minimal, with most participants opting to wait for reactions before entering or increasing their positions.

During a prolonged wave, significant price movements can occur with minimal pullbacks, posing a substantial risk.

Understanding the concept of the extended wave is crucial for position traders, as it helps prevent premature profit-taking While you may be confident that the market is trending, identifying which wave is extending often becomes clear only after the move has progressed significantly.

The diagram below demonstrates the concept that an impulse sequence contains one wave that is noticeably longer than the others.

Corrective waves consist of three distinct waves that move contrary to the primary trend The initial wave, known as wave A, opposes the trend, while the second wave, wave B, aligns with it Finally, wave C moves against the trend once more Notably, both wave A and wave B can be composed of five smaller degree waves.

ABC corrections are prevalent corrective patterns characterized by five-wave triangles As a trader, it's essential to monitor the completion of wave C, as this signals an opportunity to re-enter the market in alignment with the primary trend.

These diagrams illustrate simple ABC corrections.

The more time the correction takes, the more complex the wave needs to become.

C waves can take up a lot of time and also cover a lot of price distance They do this by having smaller and smaller subwaves.

A zigzag is a corrective wave that divides into a three wave (ABC) sequence If a zigzag subdivides:

• Wave A is made of 5 waves

• Wave B is made of 3 waves

• Wave C is made of 5 waves

Sometimes a zigzag is simple, as illustrated in the following diagrams All zigzags obey the following essential rules:

• Wave B may not retrace more than 61.8 percent of wave A

• Wave C must retrace all of wave B

22 How To Identify High-Profit Elliott Wove Trades in Real Time

The term flat refers to any ABC correction that obeys the following essential rules:

• Wave B must retrace more than 61.8 percent of wave A

• Wave C must be at least 38.2 percent of wave B

• Wave B can be 61.8 percent to 138.2 percent of wave A

Elongated flats often form complete corrections Occasionally, they form part of a larger triangle.

Rule: Wave C must be a minimum length of 138.20 percent when compared to wave B.

Often wave C will be 161.8 percent to 238.20 percent of wave B.

Wave C will often consume the most amount of time when compared to wave

26 HOW To Identify High-Profit Elliott Wave Trades in Real Time

Normal triangles feature five wave corrections, typically found in the fourth wave and B wave positions, with each wave usually subdividing into three smaller waves If you suspect you are in a fourth wave triangle, anticipate multiple subdivisions into threes and a significant time lapse compared to earlier waves, often spanning months on a daily chart During this phase, the market may exhibit false trendline breaks and tends to drift sideways, which is a hallmark of B and fourth wave triangles.

Triangles consist of five corrective waves labeled a b c d e Once the market has broken the b d trendline, the tri angle is complete.

Each wave of a triangle may or may not subdivide The five wave structure and general shape makes it obvious that a triangle has formed.

28 How To Identify High-Profit Elliott Wove Trades in Real Time

Diagonal triangles are composed of five waves and can appear at the conclusion of any movement requiring five waves to complete, such as wave C or wave 5 of a larger degree When a diagonal triangle is identified as the final wave of wave 5, anticipate a significant movement to follow.

Guidelines for Counting Waves

Waves n Chapter 1, you looked at the basic concept of putting price flows into waves

To effectively analyze price charts, it's essential to employ a methodology that segments market movements into wave patterns Begin by identifying larger waves and progressively decompose them into smaller waves Continue this process until you reach the limits of your chosen chart type, whether daily or various intraday periods Utilizing these guidelines will enhance your wave counting process.

• Mark price extremes This will be a group of waves.

• Break the groups of waves into even smaller groups, and apply impulse and correction rules to the smaller wave groups

To enhance clarity when your current time frame is overcrowded, consider transitioning to a higher time frame, such as moving from 30 minutes to hourly, then to two-hourly, daily, weekly, and finally monthly intervals.

• When the wave count becomes difficult, check a related market This will often provide a clearer picture

• Use a transparent overlay to trace over your charts This way you can try different wave counts without spoiling your charts

• When prices are congested in one area, look for an A B C pattern

• At double bottoms, look for a C wave to follow the second low

• When two areas of price congestion are linked by a simpler wave, the second congestion area is usually a C wave

Every price movement, regardless of its size, is a component of a wave that should be logically identified and accounted for While it's not necessary to label every subwave to keep charts clear and uncluttered, it's crucial not to overlook any wave in the analysis.

42 How To identify High-Profit Elliott wave Trades in Real Time

Service 3 / Guidelines for Counting Waves 47

The overlapping on charts of any time frame is a wave.

The overlapping on daily charts are small intraday corrections.

Use the previous day's close and today's high/low to determine wave flows.

Using close prices with the highs/lows gives a good indication of market action during each time period.

Wave B, despite being just one bar, stands out as significantly larger than the surrounding price bars This characteristic allows it to be classified as a complete wave of a higher degree, indicating that wave B shares the same price degree as wave A.

Waves must appear similar in both price and time to be classified as part of the same group for counting purposes, ensuring they look normal and of the same degree.

Smaller wave groups make up each leg of the a b c.

Detecting Elliott Wave Patterns and C Wave Patterns

Bar charts displaying high, low, and close prices are essential for accurately detecting Elliott Wave patterns and C wave patterns In contrast, line charts, which show only one price per time period, lack the sensitivity needed to capture all wave movements, though they can serve for initial assessments Additionally, point and figure charts, which do not consider time, are unsuitable for this analysis.

A bar chart can represent data across various time frames, ranging from one minute to one year Each market has an ideal time frame that effectively showcases C wave patterns Identifying the most suitable time frame requires thorough research of specific markets.

Chapter 9 provides examples of different time frames in trading It's crucial to understand that trades executed on smaller time frames typically yield smaller profits compared to those based on daily chart analysis.

To help define patterns of waves, I find certain terms useful Following is a list of terms with an explanation of their exact meaning.

When a wave returns into the price range of one (or more) previous waves, overlapping occurs.

Wave 4 retraces past the end of wave 1

Overlapping price retraces past the end of another complete wave

Converging happens when a wave group consists of shorter, smaller movements, confined by two trendlines that intersect at a point This pattern typically appears at the conclusion of a larger wave group, such as wave e of a triangle, creating a smaller triangle at the end of the larger triangle.

Market prices stretch by having complete but smaller, or subdivided, wave groups within a wave.

No waves subdivided Wave 3 subdivided

The book emphasizes the practical application of Elliott Wave Principles in daily trading, providing a straightforward explanation of wave theory To effectively communicate different wave degrees, symbols are utilized, grouping similar-sized letters or numbers together For instance, a larger A B C indicates a higher degree than a smaller A B C, while parentheses denote the next lower degree, such as (a) (b) (c).

When dealing with C waves, the letters a, b, c, d, e are used interchangeably with the numbers 1, 2, 3, 4, 5 Therefore, a = 1, b = 2, c = 3, d = 4, e = 5 Thus, a break above wave 4 also means a break above wave d.

The upcoming charts will illustrate key aspects of wave count logic When counting waves, it's essential to determine the most accurate count possible While the points presented in these charts are not definitive rules, they will assist you in identifying the optimal count at any given moment.

6* How To Identify High-Proftt Elliott Wave Trades In Real Time

Tiêu đề	How to identify high profit Elliott wave trades in real time
Tác giả	Myles Wilson Walker
Trường học	University of Auckland
Chuyên ngành	Financial Trading and Analysis
Thể loại	book
Năm xuất bản	2023
Thành phố	Auckland

Định dạng
Số trang	204
Dung lượng	11,2 MB