Elliott Wave Trading

Elliott Wave provides a framework for market analysis, not predictions. Its reliability depends on accurate wave counting and proper application. Many traders find it useful for context and trade planning, but it requires significant practice and should be combined with other analysis.

1) Wave 2 never retraces more than 100% of Wave 1. 2) Wave 3 cannot be the shortest of waves 1, 3, and 5. 3) Wave 4 cannot enter Wave 1's price territory. These rules cannot be violated - if they are, the count is wrong.

Wave 3 is generally the best wave to trade. It's the longest, strongest, and has the most momentum. The entry comes at the end of Wave 2 correction, with stop below Wave 2's extreme. Targets can be 161.8% or more of Wave 1.

Wave counts can be subjective because the same price action can often be interpreted multiple ways. This is why Elliott Wave practitioners maintain alternate counts. Subjectivity decreases with experience and by using rules strictly.

No special software is required. You can count waves manually on any charting platform with Fibonacci tools. However, some software offers auto-detection features that can help, though manual verification is always recommended.

Wave 2 completion signs include: price reaching 38.2-78.6% retracement of Wave 1, reversal candlestick pattern, momentum turning up (RSI divergence), or break above key resistance. Combine multiple confirmations for higher probability.

Rules (the three cardinal rules) cannot be violated - if violated, the count is wrong. Guidelines (like alternation, channeling, equality) are tendencies that usually hold but can be violated. Rules are absolute; guidelines are probabilistic.

Complex corrections (double/triple threes, triangles) are difficult to trade within. The best approach is to wait for them to complete, then trade the following impulse wave. If you must trade corrections, use smaller positions and tighter management.

Wave degree refers to the size/timeframe of waves (Grand Supercycle to Sub-Minuette). It matters because larger degree waves take precedence. A Minor wave 3 within an Intermediate Wave 3 is very powerful. Understanding degree helps see the big picture.

Use indicators to confirm wave positions: RSI divergence for Wave 5 completion, MACD strength for Wave 3, volume patterns for wave characteristics. Indicators help confirm the count but don't replace proper wave analysis.

A leading diagonal is a 5-wave pattern that can appear in Wave 1 or Wave A positions. Unlike normal impulses, waves 4 overlap wave 1 territory. Structure is 5-3-5-3-5 or 3-3-3-3-3. It signals the beginning of a new trend direction.

Measure Wave 1 and project 161.8%, 200%, and 261.8% extensions from Wave 2 low (bull) or high (bear). Also use channeling: draw line from Wave 1 end through Wave 2 end, extend to project Wave 3. Take profits at each level.

An ending diagonal in Wave 5 has 3-3-3-3-3 structure (each wave is three waves), waves overlap, and it forms a wedge shape. It indicates exhaustion and often leads to sharp reversal. The reversal typically retraces back to Wave 4 start quickly.

Always have a second interpretation ready. Mark the point where primary and alternate counts differ. Define what would invalidate primary and validate alternate. Update counts as new price data arrives. Be willing to switch if evidence warrants.

Combine multiple Fibonacci measurements: wave retracement, extension, equality, and channel projection. Where several of these converge within a tight range, you have a high-probability zone for wave completion. Use clusters for both entry zones and targets.