Understanding Elliot Wave Patterns by Wavy Tunnel

Analysis and inference through the chart patterns is among the most complex but effective methods utilized by some traders. There are different trading systems that are based on the chart pattern evaluation; Elliot Impulsive & Correction Waves Pattern, established by R.N. Elliott, is perhaps the simplest among all such systems. Let us have a thorough view of this system.

Phases

It includes 8 waves, five of them are the spontaneous waves (Bullish Phase) and three are the correction waves (Bearish Phase).

1. Impulsive phase

2 of the 5 waves in the impulsive wave pattern are correction or bearish waves while the remainder of the 3 are bullish waves. Each of the 3 bullish waves in the impulsive phase is relatively more powerful than the previous one i.e. the size of each bullish impulsive wave is longer than the previous wave. However, the 2 bearish waves in the impulsive phase have practically the exact same size and these are around 50 % or less in length as compared to bullish waves of the impulsive phase The first stage is referred to as spontaneous because in this stage the price gets greater and higher.

2. Correction phase.

The second phase of the Elliott Wave Theory is called the correction stage as it activates the downtrend in the cost. The correction stage consists of three waves; two of them are bearish while one is bullish. The bearish waves in the correction stage have to be of the exact same size or the second wave must be larger in size as compared to the first one.

The best ways to trade Elliott Wave Pattern?

The first and the most essential thing is to recognize the pattern and it is just possible when the impulsive phase has actually been completed or will finish. Opening a brief position at the peak level of the 5th wave in impulsive phase can be an excellent decision with a target simply above the start of bearish wave of the correction stage.

All this is obviously not possible simply by assessing the naked chart, for that reason the Elliot waves theory should be thought about in conjunction with other technical evaluation approaches such as trendline support & resistance and Fibonacci levels that may provide you a great hint about possible start or end of various phases & waves in Elliot concept.

There are a couple of signs that immediately draw the spontaneous & correction waves if Elliott pattern exists, you may consider those too.

Things to think about

There are certain things that require be considered while trading this pattern. Initially, search for the Elliott pattern in larger timeframes such as H4, everyday or weekly. Second, never trade the insufficient pattern; wait up until you are 100 % sure about the formation of pattern. Third, even if you are sure about the pattern, stay clear of trade unless you find one additional verification through trendline support/ resistance, Fibonacci levels, horizontal support/ resistance levels or candlestick verification bars; since there is no hard and fast length of waves provided by Elliott wave concept hence trade without an extra confirmation may not be successful.

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