Trading ETHUSDT with Elliot WavesHi Traders, Investors and Speculators of the Charts 📈📉
Ev here. Been trading crypto since 2017 and later got into stocks. I have 3 board exams on financial markets and studied economics from a top tier university for a year.
In today's analysis, I'd like to present an easy-to-follow guide on using Elliot Waves for trading. Elliott Wave theory will require looking for a pattern of five consecutive waves before making a trading decision. Elliott Wave theory begins by identifying two different types of waves.
Impulsive waves : Move in the same direction as the overall trend, 12345
Corrective waves : On the contrary, move against the overall trend. ABC
Elliot Wave strategy needs to follow and abide by some strict rules in order to validate the 5 wave move. The three basic rules are :
Wave 2 never retraces more than 100% of Wave 1. Typically, the retracement is between 50% and 61.8% of wave 1.
Wave 4 never retraces more than 100% of wave 3. Typically, declines between 38.2% and 50% of wave 3.
Wave 3 always travels beyond the end of wave 1 and it’s never the shortest one; Wave 3 will normally extend 161.8 x wave
❗ as above, A is close to Wave 4
There are also cycles within cycles. Think of it as a broccoli stem, where each flower head is composed up of many tiny smaller flower heads:
Elliott Wave theory will require looking for a pattern of five consecutive waves before making a trading decision. Impulsive waves and corrective waves are perfect opposites. The most important thing is to observe the Macro trend before using Elliot Waves in other words, is the price in a bullish cycle or bearish cycle? Here are the basic steps to follow when trading with Elliott Waves:
Step 1: Learn the Theory
The first step is to familiarize yourself with the Elliott Wave Theory, which is based on the idea that financial markets move in predictable patterns. The theory suggests that market prices move in waves, with each wave representing a specific part of the overall trend. The theory identifies two types of waves: impulsive and corrective.
An impulsive wave consists of five smaller waves, which move in the direction of the trend. A corrective wave, on the other hand, consists of three smaller waves, which move against the trend. Understanding the basics of Elliott Wave theory is crucial to trading with Elliott Waves.
Step 2: Identify the Trend
The next step is to identify the trend in the market you want to trade. This can be done by analyzing the price action on the chart. To identify the trend, look for a series of higher highs and higher lows for an uptrend, or lower lows and lower highs for a downtrend.
Step 3: Look for Wave Patterns
Once you've identified the trend, you need to look for wave patterns within the trend. An impulsive wave is made up of five smaller waves, and a corrective wave is made up of three smaller waves . These waves can be identified by analyzing the price action on the chart.
Step 4: Use Indicators to Confirm the Wave Patterns
While identifying wave patterns on the chart is important, it's also a good idea to use indicators to confirm the patterns. Some of my favorites include the Relative Strength Index (RSI) , Moving Averages (MA) and CryptoCheck START v3.
Step 5: Enter and Exit Trades
Once you've identified the trend and wave patterns, and confirmed them with indicators, you can enter a trade. You can use the wave patterns to identify potential entry and exit points. For example, you may want to enter a long position at the start of an impulsive wave and exit when the corrective wave begins.
Step 6: Manage Risk
💭 Finally, it's important to manage risk when trading with Elliott Waves. This can be done by placing stop-loss orders to limit losses if the trade goes against you. It's also a good idea to use proper position sizing to ensure that you're not risking more than you can afford to lose. On the chart I have wave 4-5 hanging in the air atm, let's get to wave 3 first and then we can re-asses where 4-5 may be. Important to note that is is a longer term trading plan.
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