Using Elliott wave analysis in a practical way

Zestilio

Zestilio

First of all, for those who are unfamiliar with what the Elliot wave principle is - check out the investopedia link: http://www.investopedia.com/articles/technical/111401.asp

For those lazy enough a short version - the principle states that the market price is changing according to a 5-3 pattern in “waves”: 5 waves in one direction followed by 3 waves of “correction”.

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This method was quite popular back in the days but now I don’t see a lot of followers, if you’d like to call them that. To me this method seems very appealing. The patterns are quite easily distinguished and one can predict long term market movements with relative ease. Of course, there is no 100% guarantee, there never is, but I found this method to be suitable for me personally.

So I decided to apply it in a more practical way - to predict movements for any stock I wish to trade, on almost any time frame. I did some research and reading and it seems that waves 3,4,5 are most predictable Elliot wave sequences (if you read the investopedia article you know what I’m talking about). And of those three the most predictable is the 4th. Wave 3 is typically the most powerful in regards to how much the stock moves (up or down) and once it starts everything start to fall in place when it comes to predicting the next move. The waves are not random, they follow a sequence of Fibonacci numbers: 2nd wave is usually around 60% from wave 1, wave 3 is around 160-300% of wave 1. When wave 3 terminates this is when it’s a good time to start taking profits. Wave 4 is the sort of safe with min risk and lower reward type trades, but if you wait out until wave 5 completes, this is where you can make more money, but at a bigger risk.

I don’t want to go into details about how to spot the patterns, how to enter the trades, what are the triggers, etc. I just wanted to share my opinion onthis method when it comes to making decisions during stock trading. I’d like to hear some feedback from fellow traders about the whole concept and maybe share some actual experience in implementing this method. Have you found it useful in practice and what are its biggest weaknesses?
 
EW can and will give you a headache because it can become so complicated with the 1 through 5 wave counts and the a,b,c sub wave counts within those larger wave counts that one can lose tract of where they are really at a given time. I think that EW coupled with Fibonnaci numbers can be a help an at times actually do work. I believe in an accept Fibonnaci ratios much more than EW theory an use those ratios everyday. I don't know why the Fib ratios seem to hit the nail on the head the way they do but there is something almost mystical about them an how reliable they are at predicting levels to look for in tops, bottoms, and reversals.

I've been reading about EW and taking a few online seminars on EW of late and have been trying to implement the theory into my own trading strategys which are short term. I can't say that I have become able to rely on the theory completely but I do see where inplementing wave count analysis does offer another working tool that can be of help in determining possible direction. It seems to work better for me with the very short term strategys an I really try to keep it to a simple 1 through 5 wave count and the abc sub wave counts.
 
I once bought some Elliot Wave software. You could pick a high or low and count up to today. The program would work on it for sometimes 30 minutes, then display its "best wave count" and also tell you how many possibilities it had tried... sometimes > 90 MILLION!

Seems to be some merit in "possible large structure 5-wave" counts.... ie, "from the 2009 low, markets could be in 5th of 5th"... keeping an eye on that one myself.

Trading with EW seems to be too complicated and too uncertain. Lots of people try it, but few have any success at all.

FWIW...
 
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Scataphagos said:
I once bought some Elliot Wave software. You could pick a high or low and count up to today. The program would work on it for sometimes 30 minutes, then display its "best wave count" and also tell you how many possibilities it had tried... sometimes > 90 MILLION!

Trading with EW seems to be too complicated and too uncertain. Seems lots of people try, few have any success with it at all.

FWIW...
More...
Has it much similar with "classic" TA?
 
Optionetics were pushing Elliot Wave analysis back in the 00's and were endorsing Advanced GET software.

EW patterns are always crystal clear in hind site but it's that hard right edge that yields the 50% accuracy no matter what method you use.
 
Actually, Elliot Waves are not so complicated. I mean, the basic principle is very easy and even a child can understand it. The other thing, which is far more complicated is to actually trade using EW theory. I've been using it periodically and in most cases it works. But sometimes it does not, but when I'm looking at those cases when it didn't work I blame only myself. I really like it, but also I understand that I need reliable software and deeper knowledge about these subject.

Any recommendations about software/books/webinars?
 
felixbocharov said:
Actually, Elliot Waves are not so complicated. I mean, the basic principle is very easy and even a child can understand it. The other thing, which is far more complicated is to actually trade using EW theory. I've been using it periodically and in most cases it works. But sometimes it does not, but when I'm looking at those cases when it didn't work I blame only myself. I really like it, but also I understand that I need reliable software and deeper knowledge about these subject.

Any recommendations about software/books/webinars?
More...
There are some cool videos on youtube, firstly check them out:
Basics:
going deeper:
Trading With the Elliott Wave Principle - Jamie Saettele:

Advanced Elliot Wave :
 
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