Thursday, August 11, 2011
Riding Elliott's Waves
So, using your superior Elliott Waving trading skillz, you decide to pop the Fibonacci tool to see if price is at a Fib level. Holy mama! Price is just chillin' like ice cream fillin' around the 50% level. Hmm, this could be the start of Wave 3, which is a very strong buy signal.
Since you're a smart trader, you also take your stop into consideration.
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.
If price retraces more than 100% of Wave 1, then your wave count is wrong.
Let's see what happens next...
Your Elliott Wave analysis paid off and you caught a huge upward move! You go to Vegas (or Macau), blow all your profits on roulette, and end right back where you started. Lucky for you we have another hypothetical scenario where you can earn imaginary money again...
This time, let's use your knowledge on corrective waves patterns to grab those pips.
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 market in hopes of catching a new impulse wave.
You place your stop just a couple of pips above the start of Wave 4 just incase your wave count is wrong.
Because we like happy endings, your trade idea works out and nets you a couple 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 trading capital instead.
(See more) Summary: Elliott Wave Theory
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