Correct and Wrong ways to count Elliot WavesHere are some of the basics of Elliot Wave Theory. Elliot waves are what makes me money. A lot of people don't use them because they are typically hard to count, and people give up when things go the wrong way.
Every wave always has its own set of 5 subwaves. When you finish a full set of 5 big waves, it now becomes ONE large wave.
Rules:
1) For EVERY wave, there is a CORRECTIVE wave.
I will likely do another post on basic corrections. I cannot preach this enough. This makes me angry when people think things will go up forever without correcting. There is a limit to everything, and the ability to count waves correctly while using fibonacci levels can help you determine when those big corrections are coming. I used it to post shorts. And they've all been successful so far (even on Bitcoin). So know that when EBall Shorts, you better get out hahaha.
2) Wave 3 is NEVER the shortest
If you count waves going up, and see that wave 3 is shortest out of all 5 waves, you're count it wrong.
3) A Corrective wave does NOT retraces back to the beginning of it's start!
If this happens, you counted wrong. If you count ONE big wave, and it retraces below that point, then it is NOT a true Elliot wave. That is when there it typically something fundamentally wrong. If you're looking for the next big coin, look for one that has had an impulse wave up, and has NEVER retraced back below that starting point. That is an indication of potential for healthy growth. Let's say Bitcoin drops to $0. That is when Elliot wave would fail. We can all agree that the only way for Bitcoin to drop to zero would be a fundamental problem.
4) Corrective wave 4 CANNOT drop into the territory of wave 1
There are exceptions to this in ascending and descending triangles. It actually typically happens in corrective waves, but should not happen in impulse wave. This is how i find critical support levels. If it hits the support (peak of wave 1), then it should not go any lower, it should at least get immediate rejection to that area. Like I said, it can drop a little bit past sometimes (especially in triangular patterns), but 8 times out of 10, if it goes too far, your count is wrong. And that wave 4 is more than likely a wave 2 of a subdivided 5 wave structure in an extended 3rd wave (look at the wave all the way to the right to see what I'm talking about).
5) Correction waves NEVER happen in 5 waves. It is always At least an ABC or ABCDE. Never a 12345.
I'll get into this later during the correction post. Just know that correction waves have their own personality. They are harder to predict and have MANY different forms. A, C and E waves go with the downtrend, B and D waves go against it. A and C waves CAN have 5 waves within them, but don't confuse it with it an ABCDE.
I think this is it for the basics. Elliot wave is my baby. And I'm still learning, because there is so much to know about it. But when you get it down, and have the eye for it, making money starts to get easy. This is how some analyst have predicted big "bubbles" and crashes because they counted Elliot Waves. And using Fib along with this, makes the whole process easier. It's kind of scary honestly. Because you can predict future events in terms of price level. Pricing in the market is a full reflection of market sentiment. This is a psychological tool used to detect market psychology. This is why i do VERY LITTLE fundamental analysis, because I see everything in the charts. The charts tell me everything. Elliot wave is not only a law of the markets, but is kind of a law of nature (at least Fibonacci is). Even scientists use it for things that I don't know. But when you get it down, you start to scare yourself. I've predicted wave 5s with big corrections while having no idea what fundamentals were going to cause a sell off.
