For the author, it was a discovery or even a surprise that the financial market itself is a fractal mechanism, and therefore the same pattern has the property of repeating itself at different periods.
We can easily divide the wave movement into smaller parts, that is, any movement repeats itself, but on different scales and boundaries.
As for the waves, they can be delineated into two groups: impulse and corrective.
The leading direction of the pattern depends precisely on the impulse type of the waves, and the correction version is directed in the opposite direction.
In such a situation, waves 1,3 and 5 are just impulse, as they form a trend.
Waves 2 and 4 will be corrective.
This five-wave model creates an impulse wave of higher order.
The entire correction figure includes three waves, which can be conditionally designated - A, B, C.
If the main impulse is directed downwards, then the waves A and C will be pulsed, B, hence the corrective wave.
At the highest wave level, this sequence is simply transformed into a single correctional wave.
The full cycle includes two main phases - impulse and corrective. At the end, the cycle is activated again.
To enter the exchange is most favorable at the start of a new cycle, that is, before the creation of the first of the waves occurred.
Under all circumstances, we need to wait until at least one complete design is formed - an eight-wave sequence.
And only after the trend is created, and the corrective wave (A-B-C) has started, you can start looking for a favorable moment to enter the market.
The characteristic features of the wave sequence can be attributed to its property to be reconstructed (as it is created), so experts do not advise entering the exchange before the end of the first cycle.
For a trader who wants to analyze and understand market models, it is extremely important to be aware of the fact that the Elliott sequence is a fractal.
In other words, each wave is divided into small waves, but with this breaking, it retains an integral structure - a constant change of momentum and correction.
Each of the impulse waves is divided into five - five wave sequence. Correction, in turn, is divided into 3 waves (3-wave model).
If we focus on the classical theory of Elliott, then the correct wave sequence must meet three parameters:
1) the second wave must not go beyond the first.
If this happens, then the sequence must be recounted, guided by this important rule;
2) wave three under no circumstances can not be one of the shortest (in the whole sequence).
Often this is a wave with the most marked, strong impulse.
3) The third wave also should not exceed the level of the first;
4) Waves first and fifth act as identical ones if we compare their size;
5) the intersection of the fourth and the first wave is simply unacceptable.
If this happens, then the rule has not been met, and it is necessary to perform the recalculation.
Correction A-B-C, which completes the cycle just ends in the zone of the fourth wave.
What specifically is required of a player to work with waves?
If we talk about trader tools, then everything depends on the level of knowledge and experience of the player.
If you are positioning yourself as a beginner (experiencing difficulties with identifying extremes on the chart), then the ZigZag indicator will help you.
Although many professionals recommend determining local maxima or minima for graphics in manual mode.
To confirm entry to the market, you can use the well-known indicator RSI, and to calculate the stop-loss you can apply the indicator ATR (or a similar volatility tool).
In general, to produce wave counting, almost any candlestick chart or bar chart is suitable, and simple graphical tools can be used.
It all depends on the trader: many are content only with candle charts and some graphic solutions.
Elliott's wave theory is a creative task, a process that requires a fairly analytical thinking and approach.
The author of the theory has foreseen and outlined only the boundaries - levels for which players should not go out.
You can work practically at any terminal of the trader and with various trading services (for example, semi-automatic tools for wave counting).
If you are accustomed to a standard test label, then it also perfectly suits this issue.
Do not forget that when creating waves, it is worth sticking to the three basic conditions that were indicated earlier
It is simultaneous marking of a pair of wave levels contributes to determine the points for entering the market.
The safest option for entering is to wait for the completion of the whole cycle (after the creation of the corrective wave), before the first wave is formed.
If you analyze waves of higher rank, you can enter the market after the second and fourth waves.
To determine the end of the corrective wave, you can use the time interval below, dropping to a lower frame.
One of the most important steps is determining the correct place for stop-loss.
You can apply the approach of the triple value of the ATR indicator, and you can find a point - such that reaching the markup would lose its meaning.
If we have successfully recognized it, then a Stop Loss order can be placed at this location.
Closure of the deal is best done in parts.
Take-profit is better to set three times more than the stop-loss.
Another option for closing the position is if the next corrective wave (A-B-C) occurs.
For a trader, such a continuous trading cycle is an excellent solution: enter at the beginning, and exit at the end of the cycle.
Undoubtedly, Elliott waves are a universal trading tool that is perfect for beginning traders who need to learn to understand the market better and create an effective trading system.
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