Elliott waves in trading this section, we will look at some setups and apply our knowledge of Elliott Wave to determine entry, stop loss, and exit points. Surfs up! You see that price seems to have bottomed out and has begun a new move upwards.
He was an American accountant and author. Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and identifying a repetitive pattern of waves. Elliott was able to analyze markets in greater depth, identifying the specific characteristics of wave patterns and making detailed market predictions based on the patterns. Elliott based part his work on the Dow Theory, which also defines price movement in terms of waves, but Elliott discovered the fractal nature of market action.
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 Elliott waves in trading out which of the three cardinal rules and guidelines you could apply.
Hmm, this could be the start of Wave 3, which is a very strong buy signal. 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.
You go to Las Vegas or Macauoverconfident that everything you touch is a winner, blow all your forex profits on roulette, and end right back where you started. There are no Elliot Waves in a casino. 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 the market price in hopes of catching a new impulse wave.
You place your stop just a couple of pips above the start of Wave 4 just in case your wave count is wrong. Because we like happy endings, your trade idea based on the Elliott Wave Theory works out and nets you a couple of 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 forex trading capital instead.