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]]>The post Practical Elliott Wave Trading Strategies Part 1 appeared first on Forex Trading.

]]>It is assumed for this series, that subscribers are familiar with Chapter 3 of Dynamic Trading and how the most frequent pattern subdivide.

Besides teaching you the practical application of Elliott wave trading strategies, an objective of this series will also be to dispel some Elliott wave myths and bad practices fostered by Elliott wave academics.

Everything taught in this tutorial series will apply to any actively traded market included futures, stocks, indexes and mutual funds and any time frame whether five-minute or monthly.

From your study of Elliott wave in Chapter 3 of Dynamic Trading, you should be familiar with these concepts.

__Impulse Trend__ – Usually unfolds in five-waves. Five-wave impulse trends are usually made in the direction of the larger degree trend.

__Counter-Trend__ – Usually unfolds in three-waves. A counter-trend is a correction to the prior impulse trend.

__Waves of Similar Degree__ – Also called swings of similar degree. Waves of similar degree represent the subdivisions that make up a completed structure. In an impulse trend, waves one-five are the waves of similar degree. The subdivisions of each wave are waves of a smaller degree.

__Subdivisions of a Wave__ – Any given wave may subdivide into smaller degree waves to complete the structure of the wave. For instance, Wave-1 of a five-wave impulse trend usually subdivides into five waves of lesser

degree. You should be familiar with how each wave of a trend or counter- trend usually subdivides.

__Multiple Time Frames__ – Multiple Time Frames has become a buzz- phrase recently. It is nothing more than R.N. Elliott’s approach to considering multiple degrees of wave structure. When the subdivisions of a wave are complete, the larger degree wave is compelte.

**Trend or Counter-Trend?**

** **

Elliott’s Wave Principle is a catalogue of defined chart patterns. These patterns are helpful to indicate if the market is in a trend or counter-trend. Knowing the trend or counter-trend position, we also know the main trend direction. Each pattern has implications regarding the position of the market and the most likely outcome of the current position.

*Most pattern positions will have an outcome that will validate or invalidate the assumed pattern position. *This is extremely important. It also helps us to determine the maximum distance away from the market to place the protective stop-loss.

The basis of Elliott’s Wave Principle is that most trends unfold in *five waves *in the direction of the trend and *three waves *or combinations of three waves in the direction counter to the main trend. It’s that simple. Markets usually unfold in three’s and five’s. Five wave patterns are *impulsive *or trend structures. Three wave patterns are *corrective *or counter-trend structures.

A five-wave impulse trend and three wave or more complex counter- trend each has a characteristic structure which we will talk about continually throughout this tutorial series. One important objective of Elliott wave analysis is to recognize in the early stages of the wave structure whether it is more likely to be an impulse or a counter-trend.

These three rules are most relevant to daily closing data.

- Wave-2 should not exceed the beginning of Wave-1. In other words, Wave-2 should not make greater than a 100% retracement of Wave-1.
- Wave-3 should not be the shortest of the three impulse waves in a five-wave impulse trend (waves 1, 3 and 5).
- Wave-4 should not make a daily close into the closing range of the Wave-1.

These rules are extremely helpful to confirm or invalidate a potential pattern. Even when using intraday data, be aware of the pattern and guidelines relative to the daily closing data.

- Pattern analysis helps us to determine if a market is in a trend or counter-trend.
- Pattern analysis helps us to determine the position of the market within a trend or counter-trend.
- Pattern analysis helps us to project the time and price objectives of the current trend or counter-trend.

Below we will go through several pattern examples. The objective is to learn to think in terms of pattern position and what a market must do to confirm or invalidate a particular pattern structure. Every potential pattern position cannot be illustrated, but if you keep the basic pattern concepts and guidelines in mind, you will be able to identify the potential pattern position for most market situations.

Here is a quick review of what we are trying to accomplish with pattern analysis.

- What is the
__most probable__pattern position? Why? The answer to this question may only be “impulsive” or “corrective.” The answer may also be, “don’t ” - What market activity will
__confirm__the assumed pattern position? What is the pattern guideline that is relevant? - What market activity will
__invalidate__the assumed pattern position? What is the pattern guideline that is relevant?

- Be quick to admit when there is no discernable or relevant pattern! Do not force an Elliott Wave count when there is no count that meets the guidelines or a clearly defined five or three wave
- If there is no discernable wave count, does the pattern appear to be in an impulse or corrective structure?
- As new data is made, the market will continually confirm or invalidate the pattern position
*Trade the market, not the forecast*. Be quick to change your assumption of the pattern position if the market activity invalidates the current assumption.

**What’s Next?**

If a five-wave trend is complete as shown below, what is the minimum pattern we should expect?

Regardless of how this five-wave pattern fits into the larger degree pattern position, at least a three wave decline should be expected. The minimum expectation is for a three-wave ABC correction. This may not unfold but if pattern is to be useful, we must begun with a high-probability assumption and let the market confirm or invalidate that assumption.

If this five-wave trend completed a larger degree five-wave trend, a five-wave decline may follow but the minimum expectation would still be a three-wave.

We always assume a correction will be a three-wave, ABC even though it may take many shapes.

What should we anticipate after the low in mid-March below – a counter- trend rally or an impulse trend eventually to a new high?

There is not enough data to give a high-probability answer. The decline shown above is clearly an impulse trend. The position of that impulse

trend within the larger degree trend will help determine what next to expect.

If the decline is a W.1, A or 3, we would expect a counter-trend rally (W.2 or B or 4) followed by the continuation of the bear trend to a new low.

If the decline is a W.C, we would expect a continuation of the bull trend to a new high.

If the decline is a W.5, we would expect a larger degree counter-trend rally. The first rally would typically subdivide into five-waves since a W.A is typically five-waves.

Whether the rally is a trend or a counter-trend, we would anticipate at least a three-wave rally (ABC or 123). The position within the larger degree trend will help to determine what to ultimately expect.

What’s the pattern of this advance? It definitely doesn’t fit a typical five or three wave pattern. To help determine what a pattern may be, it is helpful to have a firm idea of what is the pattern position of the last major pivot.

If the low in March is a Wave 1 or A, then the rally should be a correction. We initially assume any correction is going to be an ABC until proven otherwise. This data is up through the date of this tutorial.

Nowhere along the way of this correction did it unfold as a typical ABC.

Just today, bonds declined below the prior swing low which signaled the impulsive part of the rally from the late March low (labeled W.B) should be a completed pattern structure, probably a Wave-C that subdivided into five-waves. If that is the case, count backward to see if any wave count will fit. The one above is an acceptable fit within all of the guidelines of Elliott wave.

Wave-A is an impulse. Wave-B is three waves and the W.b:B is also three waves. Wave-C is five-waves. All the subdivisions fit well even though the Wave-C is out-of-balance (much greater in time and price) than Wave-A.

Some times the pattern position does not clearly reveal itself until after it has signaled that it should be complete. Then we need to count backwards to see if the pieces seem to fit together within the rules and guidelines. If so, we have a basis to make an informed and high- probability trading decision with well defined and acceptable capital exposure.

Is a 1-2-3 count the best potential for the data below? Why or why not?

The rule that was formed by for the stock indexes is Wave-4 should not make a daily close into the closing range of the Wave-3. For the data above, the potential Wave-4 has made several daily closes into the Wave- 1 closing range although the decline below the Wave-1 high is small in price. It is acceptable for a Wave-4 to close and trade slightly into the range of Wave-1 for commodities and individual stocks.

A better wave count may at first seem to be the high on the chart is a completed five-wave trend as shown below. The main drawback here is the Wave-4 is much shorter in time and price than the Wave-2 – it is out- of-balance with Wave-2. While this doesn’t rule out a five-wave count, the alternate wave count shown below where the high is a Wave-3 that cleanly subdivided into five-waves is just as good a count.

At this point in time, neither of the two wave counts is overwhelmingly favored. According to the rules and guidelines, either is acceptable. It will require more data to determine which may be best. The trader must also look to other factors such as the time, price or seasonal position to get a better idea of which wave count may be more probable.

If the five-wave count to the March high shown above is correct, beans should continue the bull trend after completing a correction to the five- wave trend.

If the alternate count is correct, beans should be in the process of completing a Wave-4 low which should be followed by a continued advance to a new high.

Which count becomes the most evident as more data is included will help to determine the extent of the next bull trend – A Wave-5 or entirely new five-wave trend.

These three rules are most relevant to daily closing data. *They should be committed to memory.*

- Wave-2 should not exceed the beginning of Wave-1. In other words, Wave-2 should not make greater than a 100% retracement of Wave-1.
- Wave-3 should not be the shortest of the three impulse waves in a five- wave impulse trend (waves 1, 3 and 5).
- Wave-4 should not make a daily close into the closing range of the Wave-1.

Whenever considering an Elliott wave pattern, you should ask yourself these three questions and not consider an Elliott wave count unless you can answer all three.

- What is the
__most probable__pattern position? Why? The answer to this question may only be “impulsive” or “corrective.” The answer may also be, “don’t ” - What market activity will
__confirm__the assumed pattern position? What is the pattern guideline that is relevant? - What market activity will
__invalidate__the assumed pattern position? What is the pattern guideline that is relevant?

If you are using Elliott wave for practical and logical trading strategies and decisions, these three considerations will always be in mind.

- Be quick to admit when there is no discernable or relevant pattern! Do not force an Elliott Wave count when there is no count that meets the guidelines or a clearly defined five or three wave
- If there is no discernable wave count, does the pattern appear to be in an impulse or corrective structure?
- As new data is made, the market will continually confirm or invalidate the pattern position
*Trade the market, not the forecast*. Be quick to change your assumption of the pattern position if the market activity invalidates the current assumption.

Each week, a new tutorial will build on what we have learned. Also, in the regular report, I will expand on the pattern comments to relate to what is being taught in the tutorials. The pattern descriptions in the report will help you to learn how pattern is considered to be part of a trading decision as a market unfolds.

Over the next few weeks, I believe you will have had the most comprehensive and practical Elliott wave pattern education available from any source. You will clearly understand how pattern can be an important factor of your trading decisions. You will also understand and how to apply Elliott wave pattern to make the high-probability time and price projections that are a key to trend targets, reversals, continuations and other trading strategies.

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]]>The post Fibonacci ratios appeared first on Forex Trading.

]]>**If, for example a wave 1 or A of any degree (or time frame) has been completed, you can project**

**retracements of 0.382, 0.50 and 0.618 for wave 2 or B, which will give you your targets. Most of the time**

**the third wave is the strongest, so often you will find that wave 3 is approximately 1.618 times wave 1.**

**Wave 4 normally shows a retracement, which is less than wave 2, like 0.236 or 0.382. If wave three is the**

**longest wave, the relationship between wave 5 and three often is 0.618. Also wave 5 equals wave 1 most**

**of the time.**

**The same relations can be found between A and C waves. Normally C equals A or is 1.618 times the**

**length of A.**

**You could even combine waves to find support and resistance zones. For example the net price**

**movement of wave 1 and 3 times 0.618 creates another interesting target for wave 5.**

**It is worthwhile to experiment a lot with your wave count, Fibonacci will help you to solve the rhythm of the**

**markets.**

**The first wave, a new impulsive price movement, tends to stop at the base of the previous correction,**

**which normally is the B wave. This often coincides with a 38.2% or a 61.8% retracement of the previous**

**correction.**

**Wave 2 retraces at least 38.2% but mostly 61.8% or more of wave 1. It often stops at sub wave 4 and**

**more often at sub wave 2 of previous wave 1. A retracement of more than 76% is highly suspicious,**

**although it doesn’t break any rules yet.**

**Wave 3 is at least equal to wave 1, except for a Triangle. If wave 3 is the longest wave it will tend to be**

**161% of wave 1 or even 261%.**

**Wave 4 retraces at least 23% of wave 3 but more often reaches a 38.2% retracement. It normally reaches**

**the territory of sub wave 4 of the previous 3rd wave.**

**In very strong markets wave 4 should only retrace 14% of wave 3.**

**Wave 5 normally is equal to wave 1, or travels a distance of 61.8% of the length of wave 1. It could also**

**have the same relationships to wave 3 or it could travel 61.8% of the net length of wave 1 and 3 together.**

**If wave 5 is the extended wave it mostly will be 161.8% of wave 3 or 161.8% of the net length of wave 1**

**and 3 together.**

**After a Triangle in a fifth wave, wave A retraces to wave 2 of the Triangle of previous wave 5. When wave**

**A is part of a Triangle, B or 4 it often retraces 38.2% of the complete previous 5 wave (so not only the fifth**

**of the fifth) into the territory of the previous 4th wave. In a Zigzag it often retraces 61.8% of the fifth wave.**

**In a Zigzag, wave B mostly retraces 38.2% or 61.8% of wave A. In a Flat, it is approximately equal to wave**

**A. In an Expanded Flat, it usually will travel a distance of 138.2% of wave A.**

**Wave C has a length of at least 61.8% of wave A. It could be shorter in which case it normally is a failure,**

**which foretells an acceleration in the opposite direction.**

**Generally wave C is equal to wave A or travels a distance of 161.8% of wave A.**

**Wave C often reaches 161.8% of the length of wave A in an Expanded Flat.**

**In a contracting Triangle wave C often is 61.8% of wave A.**

**In a contracting Triangle wave D often travels 61.8% of wave B.**

**In a contracting Triangle wave E often travels 61.8% of wave C. It cannot be longer than wave C!**

**Wave X minimally retraces 38.2% of the previous A-B-C correction; a retracement of 61.8% is also**

**common.**

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]]>The post Channeling appeared first on Forex Trading.

]]>

**Waves of the same degree can be recognized by drawing channels. Especially this is the case for Impulse**

**(5) wave structures, Zigzags and Triangles. If these waves do not equate properly, you have a strong**

**indication to search for an alternative count.**

**Next you will learn how to draw channels and how to project targets using channels.**

**To begin with you should draw a channel as soon as waves 1 and 2 are finished. Connect the origin of**

**wave 1, which has been labeled as zero, and the end of wave 2. Then draw a parallel line from the top of**

**wave 1.**

**Generally this channel is regarded as not being very useful, but it is. First of all, the parallel line serves as**

**an absolute minimum target for the 3rd wave under development. If the 3rd wave can’t break through the**

**upper line or fails to reach it, you are probably dealing with a C wave instead of wave 3.**

**Furthermore the base line from 0 to wave 2 serves as a stop. When this base line gets broken, there is a**

**strong probability that wave 2 (or B) gets more complex, thus wave 3 or C has not begun yet.**

**Keep in mind that wave 3 is normally the strongest wave and often will go far beyond the upper trend line.**

**As soon as wave 3 is finished you can draw a channel by connecting the end of wave 1 and wave 3 with a**

**trend line and drawing a parallel line from the end of wave 2. In this way you can project a target for wave**

**4. Keep in mind that normally the base line from wave 2 will be broken slightly by the price action of wave**

**4. The base line serves as a minimum target for wave 4. If wave 4 doesn’t come near the base line at all,**

**this is a sign of a very strong trend. You are probably still in wave 3 or you should get ready for a blow off**

**in wave 5.**

**As soon as wave 4 is finished you can draw a channel connecting the end of wave 2 and wave 4 with a**

**trend line by drawing a parallel line from the end of wave 3. In this way you can project a target for wave 5.**

**In most cases wave 5 will fail to reach the upper trend line, except when you are dealing with an extension**

**in wave 5 or when wave 3 has been relatively weak. In an extension, which is also indicated by high**

**volume and momentum indicators, a throw over can occur.**

**Mostly wave 3 is the strongest wave showing a very fast acceleration relative to waves 1 and 5. If wave 3**

**indeed shows a nearly vertical rise or decline, then draw a trend line connecting wave 2 and 4 and draw a**

**parallel line from wave 1(!). This parallel line will cut through wave 3 and will target wave 5. Experience**

**shows this to be a very valuable channel.**

**As soon as wave B is finished you can draw a trend line connecting the origin of wave A and the end of**

**wave B to get a target for wave D, provided a triangle indeed is developing. This is more certain after**

**completion of wave C.**

**As soon as wave C is finished you can draw a trend line connecting wave A and the end of wave C to get**

**a target for wave E. Wave E almost never stops at the trend line precisely, it either never reaches the**

**trend line or it overshoots the trend line fast and temporarily.**

**Drawing a channel is very useful to separate Double Zigzags from impulsive waves, which is difficult since**

**both have impulsive characteristics. Double Zigzags tend to fit a channel almost perfectly, while in an**

**impulsive wave the third wave clearly breaks out of the channel.**

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]]>The post Ascending and descending Triangles appeared first on Forex Trading.

]]>**These are mentioned under the Triangles description in the Classic patterns section. Basically these**

**patterns are the same as common contracting triangles, except for the fact that ascending and**

**descending triangles slope up or down.**

The post Ascending and descending Triangles appeared first on Forex Trading.

]]>The post Running Flat (modern) Pattern appeared first on Forex Trading.

]]>Description

This pattern is exactly the same as a Running Flat, except for the fact that it must retrace more than 60%,

if not we consider it to be a normal Running Flat. This distinction is necessary, because normally a

Running Flat is rare. But if it retraces more than 60% and still fails to reach the end of wave A, it suddenly

becomes much more probable the pattern will occur. In which case it will get a much higher score.

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]]>The post Failed Flat Pattern appeared first on Forex Trading.

]]>**This pattern is exactly the same as a Flat, except for the fact that wave C does not reach the end of wave**

**A and therefore is shorter than wave B.**

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]]>The post Running zigzag Pattern appeared first on Forex Trading.

]]>**Apart from contracting Triangles, a failure in a corrective pattern happens when the C wave is shorter than**

**wave A and fails to go beyond the end of A. This mostly happens in Running Flats and or in Zigzags. It**

**indicates strength in the direction of the main trend.**

**• The rules as mentioned with other corrective patterns apply.**

**Failures can occur in a C wave of wave 2, in a C or E wave of wave 4, in a C wave of wave B or X.**

The post Running zigzag Pattern appeared first on Forex Trading.

]]>The post Zigzag Flat Pattern appeared first on Forex Trading.

]]>**It is a common pattern that is exactly the same as a Zigzag, except for the fact that the B wave is allowed**

**to retrace more than 61.8% of wave A.**

The post Zigzag Flat Pattern appeared first on Forex Trading.

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