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Elliott Wave Theory


Elliott Wave Theory - TRADING SIGNALS

Conventional wisdom says that you cannot predict tops and bottoms. That may or may not be true. The good news is that you don't have to predict tops and bottoms to be successful, you only have to identify one as a high probability event after it's already happened.

When do you enter the trade? How do you determine reasonable stop-loss levels for the trade? The table describes the objectively determined trading signals that appear on the subscribers' intraday pages. Which signal you decide to follow is up to you. Each trader is an individual with a different risk tolerance level and decision-making process. The trading signals are not investment advice. This is a blue collar site not a guru site. We publish the results of a fairly impressive set of tools that can be duplicated only with thousands of dollars and hundreds of hours or time. How you choose to use them is up to you. The list of objective signals, and their trading implications, is a good basis from which to complete your trading plan.

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SIGNAL

CONDITIONS

IMPLICATIONS

Reversal Alert (RA)

A coincidence of Pattern, Price and Time has come together to mark a major pivot that we have identified as the 5th of a 5th wave, or a large degree Wave B. The Elliott Wave pattern may not always be the one that we were expecting. When a fractal occurs it means that a wave has ended, ready or not.

 The suspected high or low tick at a major pivot point is the ideal entry point. This entry has the least capital risk because it is closest to the initial stop loss point - the pivot. The trade off is that there will be a higher percentage of losses. The market does not always reverse where we want it to! The pivot point is Wave Zero.

Wave 1 Alert (W1A)

Wave 1 is the first swing in the new trend from the pivot. We can identify five fractals on an intraday chart. Wave 1 usually overbalances prior countertrend swings of the same degree in price and time. A Trading Trigger has occurred.

We may label this first swing as S1 instead of with a conventional Elliott Wave label.

This an alert signal only. No action taken. We use the extreme of Wave 1 to project price and time targets for Wave 2. Wave 1 can be an A wave. It is the first swing from a tradable pivot.

Three swing patterns occur frequently. Very often the third swing relates to the first by a multiple of .62 to 1.00. That often makes the third swing tradable even when the first swing's final status as an A wave or W.1 of a new trend is in doubt.

Wave 2 Entry (W2E)

The second swing must not exceed Wave Zero. We can identify three fractals on an intraday chart. Wave 2 has retraced at least 50% but not more than 79% of Wave 1. Wave 2 is usually >50% and <162% in time of Wave 1. A Trading Trigger has occurred.
This swing may be labeled as S2.

A Wave 2 entry is positioned for the upcoming Wave 3 or Wave C and what is usually the most profitable leg of the trade. Maximum stop loss point is Wave Zero. If a reversal bar of some type has not occurred to mark Wave 2 then the Trading Trigger will be a Continuation Bar signal after the suspected Wave 2 has moved in the new trend direction.

Wave 3 Potential (W3P)

Wave 3 has exceeded the level where W.3 = W.1. The price distance traveled by Wave 3 is greater than the price distance traveled by Wave 1.

Maximum stop loss levels can be raised to the extreme of Wave 2. The assumption is that once Wave 3 exceeds the distance of Wave 1 that the new trend is confirmed. If Wave 3 has completed five fractals and has not exceeded this level then there is a strong possibility that this wave is a Wave C reversal and not a new trend. Especially true if prices are still in the Yellow Zone.

Cleared Yellow Zone (CYZ)

The new swing has exceeded the .618 retracement level of the entire length of the last countertrend swing of the same degree.

The Yellow Zone is the 50%-62% retracement zone of the entire last countertrend swing. If, despite appearances, the new swing from Wave Zero is not impulsive in the direction of a new trend, the Yellow Zone is the most likely area where the swing will get killed.

Wave 3 Extension (W3E)

Wave 3 has exceed Wave 1 in price distance by 162% .

Trail stop loss point closer to the market. Wave 3 is commonly 162%-262 of Wave 1 and it is in the stage where it could come to an early and unexpected end.

Wave 3 Reversal Alert (W3RA)

Wave 3 has completed at least five fractals and is in a coincidence of a Price and Time Zone. A Trading Trigger has occurred.

The ending point of Wave 3 is often related to Wave 1 and Wave 2 in both price and time by certain Fibonacci multiples. Trailing stop loss point should be moved very close to the market.

Wave 4 Entry (W4E)

At least two down fractals have shown since Wave 3. The Swing Oscillator for the operative time frame (120 bars) has crossed zero. Wave 4 has not violated Wave 1. Usually Wave 4 will retrace >38% of Wave 3. Wave 4 alternates in pattern with Wave 2. Wave 4 is in a Price and Time Zone. Wave 4 is not overbalanced in time to previous waves of the same degree. Wave 4 has retraced at least 62% of the price range of Wave 2. A Trading Trigger has occurred.

The initial stop loss for the upcoming Wave 5 trade is the extreme of Wave 1. Wave 4s are often complex and the most frequent home of triangles and the dreaded "X" wave. Do not be overanxious to take a Wave 5 trade if Wave 4 has retraced more than 50% of Wave 3 or if it is so overbalanced in time that it exceeds the time consumed in any correction of one larger degree. On the other hand, if Wave 3 is easily identifiable as such and Wave 4 has retraced 38% or less of Wave 3 in a simple A-B-C, then new Wave 5 highs are very probable.

Wave 5 Reversal (W5R)

 Wave 5 has completed at least five fractals and is in a coincidence of a Price and Time Zone. A Trading Trigger has occurred.

W5R and RA are similar and often interchangeable. W5R is used when the Elliott Wave fractal pattern is a neat and clean five waves on all degrees.

When the extreme of Wave 3 is exceeded the maximum stop loss should be raised to Wave 4.

When four fractals are in place for Wave 5 trailing stops should be moved very close to the market.

 If Wave 4 has exceed >50% of Wave 3, the possibility of a 5th wave failure is increased.


         Elliot Wave Theory - Fractals                                           Trading Triggers
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