Elliot Wave Pattern and Strategy

 Here we want to give you a simple explanation of the Elliot Wave pattern.

The most important thing is to get yourself familiar with the shape and steps of formation of this pattern.

• Ralph Nelson Elliot back in the 1930s developed this theory.
• Based on his theory, price movements are very predictable because a large group of people behave in a predictable way.
• You probably heard of herd mentality. I will explain this a bit more; every crowd psychology moves between faces of optimism and pessimism. (That is how a revolution in the bigger picture happens in a country!) Moments of joy and sadness come one after another. This is part of human nature that we want to explain in the financial market.

So, when we are using Elliot wave theory we want to figure out if a stock follows a predictable pattern.

How Elliot Wave looks like:

1. During the first wave of the move, not many people notice the new trend. If you believe that this could be the start of another pattern then you can jump in on time.
2. The pull-back is very important as this will confirm the new trend by point 2 being above point 1.
3. Look for the signs for the end of pull-back and catch the train for the next wave which is the most important one. (Wave 3)
4. Wave 3 is the biggest wave and you can make the most out of following this pattern.
5. The fact that the crowd now noticed the pattern is something that makes this wave the biggest.
6. Second pull-back and again trend will resume. This is the time that every man and his dog is talking about this stock and the fact that we should by it which if they wait for half way it will be too late and the majority of people will lose their money if they do not know this pattern.

Some other points:

• Every leg up ( wave up) has its own smaller waves.
• Using Fibonacci numbers will help you to trace the waves more accurately.
• Waves 3 and 5 called impulsive waves. Fibonacci Ratio is useful to measure the target of a wave’s move within an Elliott Wave pattern. For example, in impulse wave:
• • Wave 2 is typically 50%, 61.8%, 76.4%, or 85.4% of wave 1
  • Wave 3 is typically 161.8% of wave 1
  • Wave 4 is typically 14.6%, 23.6%, or 38.2% of wave 3
  • Wave 5 is typically inverse 1.236 – 1.618% of wave 4, equal to wave 1 or 61.8% of wave 1+3