New to Elliott Wave? This is the first thing you should learn

Hello fellow traders, welcome to Elliott Wave Forecast. In this technical blog we’re going to get through some basic stuff of Elliott Wave Theory in order to help you get started with it. Many of you probably already know that Elliott Wave is the most powerful form of Technical Analysis used to forecast financial market cycles and trends by identifying extremes in investors’ psychology. Any possible price structure that could be imagined is already defined in Elliott Wave Theory and there’s an adequate Elliott Wave pattern for it.
Learning all those various types of patterns is long term process which can take months or years, but as every great journey begins with a single step, you will have to make it sooner or later, so let’s do it now.

Nowadays market is mostly made of corrective patterns so the first step would be to learn to recognize 3 wave structures on the charts. Sounds quite easy, doesn’t it ?

At the picture below you will see a book example of the up trend corrected by 3 waves pull back labeled as WXY
3 waves

 

Note: 3 waves could be labeled with ABC but also with WXY like shown on the chart above. The way 3 waves are labeled depends on the internal price structure of the waves subdivisons. Learn more about that by downloading Free Elliott Wave book from our homepage and checking out previous lessons on Flat, Zig-Zag and Double Three Patterns in Technical Blogs Section.

If you take look at the chart of any financial instrument, you will see that every big turn was led by 3 waves correction. Sometimes it’ll be very easy for you to spot 3 waves in the market and sometimes it won’t, but it’s important to start looking for this kind of structure because it’s going to be your bread and butter in trading. Let’s say you have determined the trend of the particular instrument, you have strong bias of the direction and you want to trade it. If you just jump in the middle of the trend without counting the swings first, the market would most likely throw you out of the play. You have to wait 3 wave corrective structure against the trend before you take the trade. Through time we have developed a very respectable trading strategy which defines Entry, Stop Loss and Take Profit levels with high accuracy and allows you to make position Risk Free, shortly after taking it, protecting your account.

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