As you also know, Elliott wave theory is a technical analysis tool used by Traders to analyze wave patterns of financial markets and forecast market trends by identifying psychological points of the market. market. The Elliott Wave Theory was developed by Ralph Nelson Elliott and published in 1938 in his book The Wave Principle.

Although you have learned a lot of wave theory, the reality is that most Traders who practice Elliott wave theory 90% will make mistakes because they feel that applying waves to the real market is not right. The wave theory is not wrong, the nature of the wave theory only reflects a part of the future, the error largely depends on how traders use wave theory.

People often like to choose the easy things, so they tend to deny the things that are too complicated. In fact, the essence of the Elliott wave is how you communicate with the market instead of trying to force it to predict the direction of the price action in the future. Simply put, the theory is always correct but when the market moves, the market always has many possible scenarios and sometimes only a few paths in which we predict the right trend. However, that does not mean that we are wrong about the Elliott wave.

Contradictions to conventional wave theory

If you trade for a long enough time, you will get the feeling that the market is not going according to the wave theory. The theory says that trends always appear in 5 waves but you may notice that trends can have 5 waves or only 3 waves.

The market is always dynamic and evolving, and the era in which the Elliott theory worked would probably be different from ours now. You try to deduce that, Elliott theory is built on the theory that people tend to repeat their behavior, this is reflected in the repetition of the wave pattern. But now, the financial market has more computer intervention, I believe that they will not work according to the rules that Elliott once built as before.

Some tips for using Elliott waves

  1. The Elliott Wave Theory should be viewed as part of a system rather than a standalone trading system.
  2. For accurate wave counting you should need multi-timeframe support.
  3. Always monitor the cyclicality of the market over time.
  4. Remember that markets can be manipulated.
  5. Don't impose Elliott wave usage, you need flexibility.

A good example for us appears on the SPX$ (monthly chart), 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 trend down to form 3 retracements and continue forming 5 waves pushing the downtrend about 200-300 points more.

But instead of the market continuing to decline, the market bounced back from the 2009 low, which is not consistent with what we read about the wave theory.

In conclusion, choosing a method of trading with wave theory independently is not enough, and the fact that Traders trade based on the 5-3 wave pattern is a thing of the past, Traders need a New thinking is like what the world has been changing today.

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