Advantages of using Elliott waves

Very few technical analysis tools are as capable of helping you to understand the structure of an entire market as Elliott waves. The idea of ​​the Elliott wave is that in a freely traded market, people often have the behavior of repeating wavelengths according to the 5-3 pattern (with 5 push waves and 3 corrective waves). Analysis of these wavelengths will give you a glimpse into the possibility of market price movements in the future.

Of course, because the Elliott wave is basically just a way to read the market, in case you are a trader with knowledge of price action will be a huge advantage. Another benefit of the Elliott wave is that it helps you find the end of the counter-trend move and depending on the purpose of use, you can base on that entry point for the big wave cycle will continue takes place. Finally, by using the Fibonacci tool, Elliott wave traders can predict a market reversal by knowing when they should exit but are still in a strong trend.

Characteristics of individual Elliott waves (and bullish example)

To help you understand more about the characteristics of each wavelength, here are the basic characteristics of these eight waves. The objective of this section is to help you understand the characteristics of the waves, if you can accurately mark these waves on the chart, you can predict the future direction of the market. After understanding the characteristics of the waves, we will use the MACD indicator to identify Wave 3 and determine the market's return point.

Wave 1: First wavelength. The bullish signal is on, so it still has a lot of noise.

Wave 2: Wave recovery but not more than 100% of wave number 1. Many traders believe that the bear market is back.

Wave 3: The strongest wave of the bull run and this should be an easy place to start counting waves.

Wave 4: This corrective wave will be very weak due to the influence of wave 3.

Wave 5: Not as strong as wave 3, but you can find a very clear market reversal divergence at this wave.

Wave A: The market's reversal points to a 3-wave recovery pattern.

Wave B: Also known as Suckers Rally - specializes in trapping buyers.

Wave C: wave 3 is a version of wave 3 but in a 3-wave pattern.

Use MACD to help you count Elliott waves?

Here's a wave-counting experience from Constance Brown's Technical Analysis for the Trading Professional. The idea here is that you will use an oscillator such as the RSI or MACD to identify wave 3. Because oscillators often determine the strength and weakness of the market and the divergence signals. These two factors are very important to wave number 3. We will use the example MACD indicator to illustrate for you.

Wave 3 in the 5-wave push-wave pattern must show a clear strength on the chart. When you use MACD you will see that MACD has peaked in the indicator table (circled in yellow in the chart).

Another proof for you to find wave 3 is based on the signal from wave 5. The chart must appear major divergence since wave 5 because after the end of wave 5, we will Starting a 3-wave return pattern.

Once you have found wave 3, wave 5, and the reversal point to the A-B-C 3-wave pattern. You will begin to read the market more easily, by counting the remaining waves.