How Elliott Wave can Improve your Trading Performance
30 March 2018
Is Elliott Wave myth to the trading community? In first place, Elliott Wave is sophisticated. This sophistication makes it difficult to judge its performance for the practical application. Purely looking at the trading side, Elliott Wave can introduce the subjectivity. It is true. However many trader might agree that Elliott Wave can become powerful tools when we can reduce the subjectivity. The fact is that there are many seasoned traders using Elliott Wave practice. Some of them are high profile traders at the fund management level.
I have already suggested the way to reduce the subjectivity with Elliott Wave counting through my book and some other articles using the “template and pattern approach”.
Scientific Guide to Price Action and Pattern Trading (Wisdom of Trend, Cycle and Fractal Wave)
Introduction on the Elliott Wave Trend with Wave Structural Score
The essence in the “Template and Pattern Approach” to count Elliott Wave is:
- Building up wave counting using template (or patterns) first
- Use the Wave score to get the scientific justification or when the wave score is not available, then you can check the correct location of each wave point to judge the valid trading point
These are the two main things about the “Template and Pattern Approach”. This is the only way to deal with the complex nature of Elliott Wave Trading. Now, in our Elliott Wave Trend, it shows all the available template (or pattern) to trader. This is good thing because you will not miss out any single possibility for your wave counting. At the same time, Elliott Wave Trend shows you both impulse wave structural score and corrective wave structural score.
Now here is important information for your trading. Elliott Wave can provide you trading entry at several different locations. These are not limited list but you can consider it at least. Some trader might prefer one entry over the other. You might create your own entry outside this list.
Entry Option 1) Impulse Wave .123 (= two triangles)
Entry Option 2) Impulse Wave .1234 (= three triangles)
Entry Option 3) Impulse Wave .12345 (= four triangles)
Entry Option 4) Corrective Wave .ABC (= two triangles)
Entry Option 5) Elliott Wave version of Triangle for breakout
You need to set the right template in the Elliott Wave Trend. Note that 1 Equilibrium Fractal Wave = 1 triangle. So if you wish to play with entry option 2, impulse wave .1234, then you will need to set for EFW number = 3. Then Elliott Wave Trend will bring the right template for impulse Wave .1234 (= three triangles).
After this step, all you have to do is just one button click to check the potential entry for impulse wave .1234. Follow this step:
- click on impulse button
- click on blue circle
Elliott Wave Trend will mark the label .1234 for you automatically. Now how do we know this is correct impulse .1234 pattern ? Since this is not the complete impulse wave .12345, the structure score is not available. So we have to check the position of each wave. To do so, follow these few steps:
- Click on Draw Line
- double click on each lines to check the position of each point
Click on Draw line will draw the blue line to connect each label in your chart. Now your analysis started. You do not have to check the location of Wave .01 typically. So you will check the location of Wave 2 first. To do so just double click the blue line between wave 1 and 2. You can see that Wave 2 is at 0.618 level of wave 1.
Repeat the same steps to check location of Wave 3 and 4.
Now if you are happy with the location of Wave 2, 3 and 4, then you can decide to enter after wave 4. Wave 4 will provide you the turning point. Therefore, you will be entering with buy position in our example. We introduced few steps to make a buy trading decision. You can tell that it is not a rocket science. At the same time, our trading decision is based on highly scientific rational with very small subjectivity.
There is one additional way to improve your trading especially impulse wave .1234. In fact, impulse wave .1234 is not a complete cycle so in theory you can not get the impulse wave structural score. Howerver, there is a way to get the impulse wave structure score in advance for impusle wave .1234. That is to mark Wave 5 manually to get the wave score.
Once you have marked the Wave 5 manually, then you can get the wave score to make an additional judgement for your trading. Draw Line button once more, then double click on the line between Wave 4 and 5. Now you will see the wave score of this impulse wave .12345. In our example, this comes around 81.5%. Impulse wave score 81.5 % was greater than corrective wave score 79.9% and 49.5%. So our judgement for buy at Wave 4 was the best trading decision. At the same time, when the wave 5 is complete, we have to go for sell and close our buy position.
Take profit target will be always our next wave position. Stop loss target can be 10% to 50% of take profit size for your trading. To get the next wave position, you can always mark the label in advance to set your take profit target. For example, if you are trading with Impulse wave .1234, then you should mark Wave 5 and get the take profit target. If you are trading with impulse wave .12345, then you might just use channel as your take profit target or Wave 4 could be your potential target for your take profit.
This is only recommendation when you use Elliott Wave Trend as the standalone trading tool. when you combine with other trading system, then take profit target and stop loss target can be different.
We made Scientific Elliott Wave Trading extremely simple. With few button clicks, you can trade like a Pro.
If you feel like you mastered Elliott Wave Trading, then you can even share your analysis with other traders. Just ask your friend or clients to download Elliott Wave Trend Reader, then send them your ElliottWaveTrend.txt file. So they can load your analysis on their charts.
Elliott Wave Trend Reader is free tool and anyone can use to see other’s analysis.