It is Ralph Nelson Elliot who finds regularity in "irregular" price movements. Later, the pattern he found was published and received the title as Elliot Wave, to honor him. In the Elliot wave, it is said that price movements are influenced by changes in the psychological condition of market participants. And the change of emotion, causing positive phase and negative phase.
Positive Phase, is a phase where price movements are in line with existing trends. While the negative phase, is the phase where prices have a correction before continuing the existing trend. Furthermore, he describes that price movements can be described in the archetype below:
In the pattern with the red circle, the price moves from point 1 to number 3 and then to number 5. Assuming that the trend is bullish, Figures 1 to 5 we can call it as a positive phase. Then, the points A, B, and C are likened to the negative phase, which becomes the correction of the trend movement.
Not only that, when the price moves from point 1 to point 2 (or from 3 to 4, B to C, etc.) the price forms a smaller Elliott Wave pattern inside. Which we can then draw with the second pattern in the picture above. And if we examine further using a smaller timeframe, it will look elliot wave is much smaller than the second pattern; Which is illustrated in the third pattern.
The Elliot Wave pattern is included in Fractal; Which means that this pattern will continue to recur at low timeframes, and then arrange the same pattern at a larger timeframe.
Quite complicated is not it?
The most important thing when applying elliot wave in trading is to identify the ongoing trend. Whether the trend is bearish or bullish, and whether the price is now in a positive or negative phase.
One of the success stories in using the Elliot wave in trading is when Robert Precther advised his subscriber to close their buy position on October 2, 1987. At that time, the Dow Jones Industrial Average was closed at 2640.99; But in just 2 weeks, the price index fell by more than 30% and has been at the level of 1738.74.
Implementation in forex trading
As discussed above, the elliot wave pattern is a repeating and overlapping pattern until a larger elliot wave pattern is constructed; Then your interpretation will be very important. There has been an anecdote saying that if you collect a dozen traders who use elliot wave techniques, nobody will agree with each other when asked the question "Where is the price now? Positive or negative phase? On a wave? "
And that is a simple illustration of why traders tend to avoid this technique for thousands of reasons; Either because not enough experience, or always loss when using this technique, or maybe because it is still looking for holy grail.
What you will do is:
Identify current trends
A few tips, when you do the above steps and have trouble; You can see a chart with a timeframe 1 level higher than the chart you are currently using. If you do an analysis on the H1 chart, then you can look at the H4 chart starting from the previous 3 days (approximately 18-20 candles before).
Identify current wave position
Then, you can use the Fibonacci tool to help you in this step. Often, the negative phase / corrective wave stops right at the fibonaci line. While the positive phase / motive wave often breaks through the levels of the fibonaci line.
Identify the level for position entry
When you have determined the current wave position, then you use your interpretation skills to "wander" where the price will move next.
Will you follow the wave of your findings in the previous step?
Are you waiting for the wave to end and entry at the beginning of the next wave?
Is your wave of findings really in line with the trend? Or is it just a corrective wave of a larger elliot wave pattern?
Execution
And the last is open position and determine your risk: reward ratio.
Happy trading, and hopefully you can further develop the contents of this article in accordance with your trading needs and your trading experience.
Positive Phase, is a phase where price movements are in line with existing trends. While the negative phase, is the phase where prices have a correction before continuing the existing trend. Furthermore, he describes that price movements can be described in the archetype below:
In the pattern with the red circle, the price moves from point 1 to number 3 and then to number 5. Assuming that the trend is bullish, Figures 1 to 5 we can call it as a positive phase. Then, the points A, B, and C are likened to the negative phase, which becomes the correction of the trend movement.
Not only that, when the price moves from point 1 to point 2 (or from 3 to 4, B to C, etc.) the price forms a smaller Elliott Wave pattern inside. Which we can then draw with the second pattern in the picture above. And if we examine further using a smaller timeframe, it will look elliot wave is much smaller than the second pattern; Which is illustrated in the third pattern.
The Elliot Wave pattern is included in Fractal; Which means that this pattern will continue to recur at low timeframes, and then arrange the same pattern at a larger timeframe.
Quite complicated is not it?
The most important thing when applying elliot wave in trading is to identify the ongoing trend. Whether the trend is bearish or bullish, and whether the price is now in a positive or negative phase.
One of the success stories in using the Elliot wave in trading is when Robert Precther advised his subscriber to close their buy position on October 2, 1987. At that time, the Dow Jones Industrial Average was closed at 2640.99; But in just 2 weeks, the price index fell by more than 30% and has been at the level of 1738.74.
Implementation in forex trading
As discussed above, the elliot wave pattern is a repeating and overlapping pattern until a larger elliot wave pattern is constructed; Then your interpretation will be very important. There has been an anecdote saying that if you collect a dozen traders who use elliot wave techniques, nobody will agree with each other when asked the question "Where is the price now? Positive or negative phase? On a wave? "
And that is a simple illustration of why traders tend to avoid this technique for thousands of reasons; Either because not enough experience, or always loss when using this technique, or maybe because it is still looking for holy grail.
What you will do is:
Identify current trends
A few tips, when you do the above steps and have trouble; You can see a chart with a timeframe 1 level higher than the chart you are currently using. If you do an analysis on the H1 chart, then you can look at the H4 chart starting from the previous 3 days (approximately 18-20 candles before).
Identify current wave position
Then, you can use the Fibonacci tool to help you in this step. Often, the negative phase / corrective wave stops right at the fibonaci line. While the positive phase / motive wave often breaks through the levels of the fibonaci line.
Identify the level for position entry
When you have determined the current wave position, then you use your interpretation skills to "wander" where the price will move next.
Will you follow the wave of your findings in the previous step?
Are you waiting for the wave to end and entry at the beginning of the next wave?
Is your wave of findings really in line with the trend? Or is it just a corrective wave of a larger elliot wave pattern?
Execution
And the last is open position and determine your risk: reward ratio.
Happy trading, and hopefully you can further develop the contents of this article in accordance with your trading needs and your trading experience.
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