Elliott Wave for BeginnersA chaotic system is one that obeys a given set of rules but is too complex to predict due to the high number of variables involved.With enough variables in play, any rule-based system becomes chaotic, observable and measurable but too complex for prediction.Consider the game of Chess. After a million games of chess all bear similarities but are all different. The game itself is in flux, but the structure of the game is constant.The outcome is always different in some way, but the rules are always the same

The price must either go up, down or sideways. A trader does not need to predict the future, or even attempt to predict it. They only need to know the longstanding rules of the game and abide by them. If the market goes up, they are long. If the market goes down, they are short. Price is nothing more than a collective perception of reality. When reality changes, perception changes. When perception changes price changes.If you can react properly to price changes, you can profit. You cannot control or manipulate the markets and the markets have absolutely no power or control over you, then the responsibility for what you perceive and for your resulting behavior resides only in you. Elliott is not perfect. You will not find perfection but if you combine the Trading College rules with Elliott wave then you will profit. What may stop you progressing and making a profit is your ego. Give up on your ego and chill out. Have a growth mind set and not a fixed mind set. We are going to make trend trading easy for you to understand. Take your time and grow. Let’s dive into the wave principle. We will be combining Elliot Wave with our strategies and indicators and provide you with the most powerful system in the world.

A little history before we start.In the 1930s, Ralph Nelson Elliott discovered that freely traded markets are patterned. More specifically, he discovered that moves in the direction of the larger trend unfold in five waves and that moves against the larger trend (corrections) unfold in three waves.

Elliott studied multiple time frames, ranging from yearly to half-hourly, of the Dow Jones Industrial and Dow Jones Transport indexes. He found the same patterns, regardless of time frame. This concept, that a market exhibits a similar structure at all degrees of trend (much like tree, which is made up of smaller versions of itself), would later come to be known as fractal.

Although initially concentrated on stock markets, Elliott expanded his study to various commodities markets and found the same patterns! He wondered why Page | 1

markets that are supposedly driven by different outside events would exhibit the same patterns. The answer is that market trends are not a product of outside forces, but are instead a product of human psychology, which follows the wave principle.

The Five Wave Pattern. The Basic Pattern

In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in Figure 1. The two interruptions are apparently a requisite for overall directional movement to occur. The eight-wave cycle.

At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend. Because the five-wave pattern is the overriding form of market progress, all other patterns are subsumed by it.

Wave one

This wave breaks the previous downtrend and begins a new uptrend. This marks the beginning of the trend. You want to start watching for a pullback when this wave starts.

TC STRATEGY: Comes after a 2 & 3 Wave Long or Short. You will already be in the 2 and 3 wave strategy and taking profits soon. Wave 1 may give you green PTS buy signals. This is an early warning price will reverse.

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It also may have a Level 2.

Long Wave 1 or A – We use the Storyteller to show us when the market is going to reverse after a major trend down.

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Wave two

The pullback! Now you want to start looking for an entry using our strategies. This sets up our First Pullback scenario. You are hopping on board at the beginning of an uptrend.

TC STRATEGY: Fibonacci retracement– Measure 76.4% and 61.8% using your Fibonacci retracement tool. If it holds these junctions the price is going to reverse into a wave 3. We could also get a Trend Predictor long at these levels. We could have red PTS candlesticks if it we were in a down trend. We could also get a level 2. Get ready for the big move.

Wave three

Wave three of an Elliott wave cycle is the longest and the strongest of all five waves! That is why we want to get on board during wave two (the pullback) right as wave three is beginning to unfold.

When you can find stocks or FX pairs that are beginning a wave three, you want to hold on to your position for a longer time frame. Don't treat is at a little swing trade, instead, treat it as a trend trade. You want to ride this powerful wave to completion! Why? Because you will make the most amount of money in the least amount of time.

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TC STRATEGY: PTS long signals or Green Momentum trigger or both together. Within a wave 3 continue to do OOS (out of sync) Porches, level 1 and any green PTS or Momentum Trigger.

Wave four

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This wave is disappointing for those that bought this FX pairs too late. The pair moves a lot slower and is a signal that the best part of the trend is over.

TC STRATEGY: Fibonacci 38% and we would look for an OOS. Get creative and use the Money Line

Wave five

Again, this wave is usually sluggish and not near as dynamic as the third wave of an Elliott wave cycle. This also marks the last burst of buying before a new downtrend starts.

TC STRATEGY: At the start of wave 5 we use the PTS and Momentum Trigger. We are coming to the end of the trend. Watch the Storyteller strength

TC STRATEGY: Wave 5 comes to an end with a 2 wave short signal. We enter at the 127.2 Fibonacci or break below low of highest closed candlestick

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Wave a, b, and c

These waves finally start the downtrend. You will notice that wave A looks like just a regular pullback. Nope. This is a bull trap. You will also notice that wave B doesn't get higher than wave 5. This is the first pullback of the downtrend and wave C is the third wave in a downtrend!! This is where you would look for shorting opportunities.

This is the basic structure of an Elliott wave pattern. There is a lot more to Elliott wave theory, but some of it can get very complicated. Also, sometimes it can be very difficult to identify exactly which part of the cycle a stock is in!

TC STRATEGY: Repeat from wave 1.

The Complete Wave Labels

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Elliott Wave for Advanced Users

The basic 5-3 pattern is evident at all degrees of trend

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Motive WavesMovements in the direction of the trend of one larger degree trend unfold in 5 waves are referred to as motive waves. There are two types of motive waves (Impulse and Diagonals). Notice in Figure 1 that waves 1, 3, 5, A, and C each divide into 5 waves. These waves are with the trend of one larger degree, which divide into 5 waves. On the other hand, waves 2, 4, and B divide into 3 waves because these waves are against the trend of one larger degree. All motive waves obey 2 rules.

1. Wave 2 never retraces more than 100% of wave 1

2. Wave 3 is never the shortest wave between waves 1, 3, 5

ImpulseImpulse waves are the most common type of motive wave. In an impulse, wave 4 does not enter the price territory of wave 1 (although in FX, with the high degree of leverage, you may see overlapping on intraday charts; but rarely). Within strong trends, price may extend. Typically, wave 3 is the extended wave, but it may also appear as wave 1 or 5. You usually see only one wave that is extended, or unusually long compared to the other motive waves.Figures: One of waves 1, 3, or 5 is always extended

DiagonalsDiagonals are known to traditional chartists as wedges. A diagonal is most common in the 5th wave position that follows an especially strong 3rd wave. In such

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instances, the pattern is referred to as an ending diagonal. In an ending diagonal, each wave (1,2,3,4,5) consists of 3 wave zigzags and waves 2 and 4 can overlap.An ending diagonal in the 5th wave position following an especially strong 3rd waveReversals from ending diagonals are sharp and the entire diagonal is usually fully retraced. The position is initiated near the line that connects waves i and iii (this estimates the end of wave v). If wave iii is shorter than wave i (which is common in a contracting diagonal), then place the initial stop at a distance where wave v equals in length the distance in wave iii. This is because if the wave labeling is correct, wave iii should not be the shortest of waves i, iii, v.Note: Diagonals can also appear in the wave 1 position and follow similar guidelines as the ending diagonal.

TrianglesTriangles are common as 4th waves, B waves (and X waves…see combinations). The pattern consists of five overlapping (and usually contracting) waves labeled A, B, C, D, and E. Each one of these waves is composed of three waves. Two type of subwaves appear in triangles, zigzags (including multiple zigzags) or triangles. One of the five legs of the triangle can be a triangle itself, but you won’t find two or more legs of the triangle carving a triangle.

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Detailed structure of a triangle (left), a triangle as a B wave (middle), and a triangle as a 4th wave (right)At the beginning of the triangle, the trader does not know that the pattern unfolding is actually a triangle. Towards the end of the triangle, the pattern is quite clear, and the trader can position for the wave that will succeed the triangle (5th wave, C wave, or Y wave). Positions are initiated near the end of wave E and a stop is placed below wave C.

ZigzagsZigzags are common as 2nd waves and B waves. The pattern consists of three waves and is labeled A-B-C. Waves A and C are composed of five waves (motive waves) and wave B is composed of 3 waves (correction).Zigzags can appear in both bull and bear markets.A bull market zigzag (bull market because the zigzag is down, against the larger trend)

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FlatsFlats occur commonly as 4th waves and B waves. The pattern is labeled the same as a zigzag, A-B-C, but the compositions of the subwaves differ from that of a zigzag. While a zigzag’s divisions are 5-3-5, a flat’s divisions are 3-3-5. Wave A is just in 3 waves. Wave A is weak (only 3 waves), therefore wave B terminates near or beyond the origin of wave A. Wave C will typically end just beyond the end of wave A. There are 3 kinds of flats. Regular, expanded, and running. Expanded flats are actually more common than regular flats and running flats are rare.

A regular flat (left), an expanded flat (middle), and a running flat (right)

Combinations (complex corrections)Prolonged sideways / corrective action is the result of a combination, also termed a complex correction. A complex correction is 2 or 3 (but no more than 3) corrective patterns connected by an X wave(s). The first and third patterns are labeled W and Y. In a triple combination, there is a fifth pattern that is labeled Z.

A double zigzag (2 zigzags connected by a 3 wave movement known as an X wave. A triple combination would have another X wave connecting waves Y and Z.

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Things to consider:

1. I guarantee you will be confused. The high C personality’s make sure you relax and realise EW is not a perfect.

2. Don’t get stressed trying to count the waves as sometimes they are not obvious. Just count the swings. 1, 2, 3 and then spot see if we have a 2 or 3 wave as that often signal a bigger reversal. If the top analyst at JPM thinks EW is hard to use, then we all will. He often says just go with the obvious flow of the market and be quick to change your view if the markets change course.

3. It’s not perfect but it does give you a good trend structure.

4. Always try counting the daily and 4-hour charts. Most of you are short term traders.

5. Good luck and give it a go.

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