Basic of Elliott wave = prediction patternProblem – Many traders tend to rely on this pattern too much, and it is wrong to put all your eggs in one basket! In addition, in many cases, Elliott waves are hard to identify. Traders make recognition mistakes and wrong interpretations of the charts.
Let’s see what an Elliott Wave Pattern looks like on the following charts:
You can see that the pattern is assembled at the first major trend (in this case- uptrend), built of 5 stages (Waves 1 to 5), and a smaller secondary trend (in our case a downtrend), built of 3 stages (Waves A to C).
A number of rules:- Wave #2 will never pass the starting point of wave #1;
- Wave #3 will never be the shortest of the five stages that build the first trend;
- Wave #4 will not enter the price range of wave #1. Assuming an uptrend, it will always end higher than wave #1’s top;
- Wave #2 and wave #4 usually end around Fibonacci ratios
Pay attention to all 8 stages of the Elliot Wave in the following chart:Will the pattern repeat itself again? Bingo!
Identifying an Elliot Wave in time can produce great profits!
Here is a nice example of identifying the opening point of wave #3 with
Fibonacci’s help (Ratio 0.618):Let’s see what happens next:
In most cases, the wave’s height is approximately the same as the three main
Fibonacci ratios (.50, .382, and .618).Ccto: FXleaders