Elliott Wave Theory is a technical analysis tool used by traders to analyze wave patterns of financial markets and forecast market trends by identifying market sentiment points. Elliott Wave Theory was developed by Ralph Nelson Elliott and published in 1938 in the book The Wave Principle.

Although you have learned a lot of wave theories, the fact that most traders who practice the 90% Elliott wave theory will make mistakes because they feel that applying waves to the real market is not right. The wave theory is not wrong, the wave theory only partially reflects the future, the error is largely due to the way traders use wave theory.

Things are contrary to conventional wave theory

If you trade for a long enough time, you will get the feeling that the market is not following the wave theory. The theory says that the trend always occurs in 5 waves but you can see that the trends can have 5 waves or only 3 waves.

The market has always been impactful and evolving, an era in which the Elliott theory works will probably be different from our own. Think about it, Elliott's theory is built on the theory that people tend to repeat their behavior, which is reflected in the repetition of the model of wavelengths. But nowadays, financial markets have more interference from computers, I believe they will not work according to the rules that Elliott used to build as before.

Some tips for using Elliott waves
  • Elliott Wave Theory needs to be seen as part of the system instead of an independent trading system.
  • For accurate wave counting, you should support multiple timeframes.
  • Always keep an eye on market cycles over time.
  • Remember, the market can be completely manipulated.
  • Don't impose Elliott Wave usage, you need flexibility.
A typical example shows us on the SPX $ chart (chart monthly), the market peaked in 2000 and 2007. If you use the classic Elliott Wave theory since 1930, you will see The market has formed 5 waves since 2007, which makes you think that the market will have a downtrend to form 3 recovery waves and another 5 waves to push the downtrend around 200-300 points.

But instead of the market falling again, the market bounced back from the 2009 bottom, which is not true of what we read about the wave theory.

In conclusion, the choice of a trading method with wave theory independently is not exhaustive, and the fact that traders trade on the 5-3 wave pattern is a thing of the past, Trader brothers need New thinking is the same as what the world has changed today.

To be able to trade Elliott Wave effectively, you should combine it with another indicator, and use the new wave pattern, which will be discussed in the next section.

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