How to Use Elliot Wave Theory in Forex Trading - ForeXposed

Latest

Exposing Forex World

Sunday, September 17, 2017

How to Use Elliot Wave Theory in Forex Trading



This basic pattern shape resembles the fractal pattern in the graph. Do you know what is a fractal?

A fractal is a regular geometry, where every smallest part of the geometry shape is the same as the big unit geometry. To make it easy, let’s see a picture of the Elliot basic patterns: 
How to Use Elliot Wave Theory in Forex Trading

Look at the picture above. The shape of the top line consisting a peak point 1 - 5, and continued with the decline from A to C, it is the basic form of ElliottWave. According to Elliott, the price increase is always in a three-wave up, and then proceed with the two waves down. Vice versa, in a state of a downtrend, three waves down always concludes with two wave up. This rule follows the following rules (see image above on the graphs 1 - 5 and A - C):

  • The wave down (number 2), should not pass through the beginning of the first wave.
  • The third wave may not be the shortest wave among the waves up (1, 3, 5).
  • The fourth wave should not be passing the first waves.

Well, that's the base rules. Then, when the wave on top of the image is cracked again become smaller, then the results will be the same, following the bigger wave pattern. This is what is meant by fractal patterns. Much like the branches of a tree, where the smallest branch following the large branches pattern. In fact, if the wave is cracked into small, then the results will follow the same pattern.

Now let's look at the forex charts, below:
How to Use Elliot Wave Theory in Forex Trading
Source: Forex-Central.net
Following a pattern that said by Elliott, right? The above chart is the daily chart of the GBPUSD. Notice how the price movement waves follow the rules that have been outlined above. In fact, this pattern continued, until now!

Well, that's not yet finished. Then Elliott isolates the other eleven pattern, thus complementing the existing pattern into 12 patterns. Here are the eleven remaining patterns:
How to Use Elliot Wave Theory in Forex Trading
How to Use Elliot Wave Theory in Forex Trading
How to Use Elliot Wave Theory in Forex Trading
How to Use Elliot Wave Theory in Forex Trading
How to Use Elliot Wave Theory in Forex Trading
Source: Acrotec.com
Complete already. You can learn this, one by one, and fit it with the existing pattern. A good understanding of these patterns will greatly help your trading. Somehow, even though it feels a bit preposterous to me, but what is described by Elliott have a point. My trading in everyday life, the Elliott pattern is quite helpful in identifying the future forex price movements.

One privilege of Elliott is not based on data that has been going on, but more to the pattern that may appear. This will greatly help us to anticipate the price movements that may occur in the future.


The Constraints in Using Elliott Patterns

OK, the Elliott Wave is indeed good. But that does not mean there are no constraints. The first constraint and the hardest is a large number of existing patterns. To memorize 12 patterns and determine which patterns might occur to the future price is obviously not an easy thing. If you are not patient enough in practice, it could make you frustrated.

The other constraint is on its complexity. Admittedly, the Elliot patterns are quite complex and have a number of specific rules, which can be very custom, so it's not enough just to understand the 12 basic patterns. In fact, there is a special research institution that was established just to analyze the Elliott Wave, using hundreds and even thousands of computers! This shows, the use of Elliott's often ineffective for personal traders like us that in fact only understand a little bit about the use of the platform and the math.

To resolve both of these problems, we recommend you to use only a few basic patterns. You can also use Elliot patterns as a supplementary indicators only, not as buying and selling decisions. Or another solution, you can develop a computer program that is able to know Elliott patterns, so you don't have to bother to trade and understand Elliott manually, one by one. I personally prefer the first way because I am not a programmer. I am quite acquainted with the basic pattern and triangle pattern only because in my opinion the both pattern is a fairly accurate.

My advice to you who are interested in Elliot technical analysis, you have to read more special forex education about Elliot. If you are interested, please look it up on the internet. Just type ‘Elliott Wave’ on Google, you'll find hundreds to thousands of site which discuss it. Well, please surf on the internet.