Elliot Wave Trading Strategy in Forex
Elliot Wave concept is classified as a form of technical analysis in which all information regarding future price movement comes from the price itself in preference to outside forces as is espoused through fundamental analysis in the Forex market.
There are many fundamental analysts who have discounted the practice, but Elliott wave lives on, no matter the backlash!
This trading concept has emerged from ancient origins to a now where they’re at the moment are university publications at the problem.
There is robustness within the Elliot wave model, which holds up the price pattern in each regular financial situation or even throughout the wild market situations experienced in the course of the financial crisis.
The Elliot wave trading strategy is complete with beneficial packages of the popular Forex trading method.
Identify Market Trend Using Elliot Wave
The uniqueness of the Elliott wave trading strategy is that it not only can provide you with a view of the trend direction.
It additionally gives insight into the trend of adulthood.
Therefore, if you recognize the trend direction you would understand that the trend is at the early stage.
Then you may be satisfied to lease your position open for a longer time and follow that flow until it’s probable end.
#1 How far is the trend moving?
Whether or not it is an impulsive momentum inside the path of the trend that’s in 5 different waves.
Or a corrective wave within the trend.
The Elliott wave trading principle gives a gauge regarding how far the movement can go.
The Elliot wave model indicates that the trend consists of 5 waves in the course and three against the trend.
The internal makeup of every wave should also spread in 5 waves.
This option permits the Elliott wave trader to comply with the wave and depend on it as it’s far taking place in actual time.
When you count wave (1) up, you may anticipate a correction in the second wave.
This action; however, affirms a wave depend and you could get prepared to go into your long position.
While your role is on, you may then count the waves as they manifest, wave (3) will flow higher commonly in a more significant move compared to wave 1.
Then wave 4 might correct downwards, but it ought to now not violate the excessive of (1) and then a very last push up in 5th wave, which has to hint out five waves again.
All along, you keep your trade open until the waves are whole.
Following the waves improves your access position, and improves your go out factor, bagging you more prime factors within the method.
The opposite of the trend is a correction.
This phase will spread in 3 waves labeled A, B, C.
These three waves again let in the trader to hint the correction because it happens.
Maintaining on top of the wave, remember will provide you with the best possibility to join the correction to its final touch in terms of the waves.
Elliot Wave Trading Strategy
In the following section, we will see a trading strategy using the Elliot wave principle in the Forex market.
Before entering the trade make sure to use appropriate money management and for every trade.
Do not take more than 2% risk per trade.
The financial market consists of a lot of risks therefore, no trading strategy can guarantee you 100% profit.
Step 1: Wait for the 1st Wave
It is often challenging for traders to identify as the forex chart has no starting point.
Moreover, trading is open for 24 hours and 5 days a week.
Therefore, there is no exact clue to start.
However, the market context can tell us something about the primary wave 1.
When the market starts to do corrections, it goes through ups and downs at a similar speed.
As a result, price moves with a zigzag formation with no specific direction.
After moving like this for a certain period the market got a breakout and starts to form a trend.
Here we can find our 1st wave.
Step 2: Correction of the 1st Wave
As we know it is important to have a better risk: reward for every trade in the market.
Therefore, after the 2nd wave, we should wait for the price to come against the trend with a corrective speed, which is called the second wave.
Please be noted that the second wave would be shorter than the 1st wave and it should now break below or above the 1st wave.
Later on, we will wait for the price at 50% of 73.6% retracement of the 2nd wave with the hope that the 3rd wave will appear and our expectation will sustain as long as the price is holding within the 1st wave zone.
Step 3: Profit Making Zone
The third wave is the longest and strongest wave within the whole 5 waves.
Therefore, your aim would be to take maximum benefit from the 3rd wave.
- Trading Entry- At the end of the 2nd wave and the start of 3rd wave
- Hold the Trade- Until the third wave completes with some correction.
- Close the trade- We should get out of the trade as soon as the 3rd wave exceeds the 1st wave territory but depending on the market flow and speed.
Stop Loss and Take profit- In this trading strategy, the stop loss would be the higher or lower portion of the wave one.
And the take profit would be the ending point of the wave 3
We know that the forex market is associated with a lot of risks therefore, having a trading strategy is mandatory to remain successful in the industry.
The Elliot wave is used by most of the experienced traders and investors on institutional levels; therefore, it works well compared to the other trading strategy.