Elliot Wave Technical Analysis Course - Part 1Surfing the Waves with Richard Tataru

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About the Author

Richard is passionate about technical analysis with years of charting experience under his belt. When it comes to his insights and how he analy-ses the markets, he uses leading analysis tools. In particular, Elliott Wave Analysis is his forte, and he dedicates the majority of his time to using and perfecting this analytical method. Richard uses Elliott Waves in combination with Structures, Patterns, Divergences, and then spices things up with Vibration Levels, Fibonacci measurements, Channeling, Break-outs or Flag formations.

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ELLIOTT WAVE PRINCIPLE – COURSE MODULE

AUTHOR’S THOUGHTS

INTRODUCTION TO ELLIOTT WAVE

R.N. ELLIOTT’S LEGACY

BASIC SEQUENCE & WAVE PATTERN

QUICK FACTS & GUIDELINES

Sit back and surf the waves, it’ll be worth your while!

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ELLIOTT WAVE PRINCIPLE – COURSE MODULE

The course will be delivered in a series of EBooks to allow you to progress through the course at your own pace.

Before we get started on the Elliot Wave Course and talk about how this Principle can be applied to Forex & CFD trading, please be aware that that the following material has been published for educational purposes only and should not be considered as immediate investment advice. Should you attempt to use any of the information provided, please acknowledge the risks involved.

This course is delivered in a way that allows you to develop a whole new approach to trad-ing or to perfect your current strategy. Besides the Elliott Wave Principle, it will also include Fibonacci Mathematical Measurements, Consolidation Areas, Points of Interest or Vibra-tion Levels, Divergences (Differences in the Price Action), Types of Structure, and so much more.

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This technique however, is known to be very subjective among traders. There are different types of approaches and traders tend to begin using it, only to abandon the technique at a later stage as they may not fully understand the concept. Every trader is different in his/her trading style and has his/her own set-ups, so it will be up to the individual trader to adapt the concept their own trading strategy. The challenge that most Elliotticians face lies within the structure types, reading, mapping & labeling, hence the reason for the subjectivity. This also accounts for the reason why Wave Traders tend to have a main count and an alter-nate count acting as a back-up.

If you are new to the Elliott Wave Strategy, it’s recommended to start with the basics and to keep it simple in the beginning. This should help you avoid any potential head-aches. As your knowledge and hunger to learn increases, you may choose to see how far down the rabbit hole goes and explore/apply more advanced techniques.

Within this Module we will discuss the structures of the Elliott Wave Concept; the types of waves, cycles, but most important-ly how to start counting the right way and how to apply the techniques onto your charts.

This module will be split into two catego-ries; a basic and an advanced approach.

The Elliott Wave principle is a complex way of analyzing the Financial Markets. It reveals how trader sentiment works, how people behave and the mass psychol-ogy behind buying and selling the assets.

Some believe that this method is in fact one of the main laws of the universe and it can be applied to almost every aspect of our lives... Well, we’re not going to stretch it that far. Instead we’re going to discuss how this exercise in probability can help an Elliottician to identify Market’s Struc-tures and to anticipate the next most likely market movement, within the price action on the charts of course.

We are talking here, about a catalog with structured patterns concerning the way crowds diverge from extreme points of pessimism to extreme points of optimism. It is a description of the steps human beings experience when they are part of the investment crowd. As you’ve probably guessed; Price Action reflects the human buy/sell emotions, which appear on the charts as patterns. The Elliott Wave Tech-nique is a road-map with which traders classify patterns for their up-coming trades. Many believe that the Market has a pulse and a natural way of developing price action. With this technique, Elliotti-cians are often one step ahead of the crowd.

In my personal opinion, this is by far the most reliable leading analysis tool that a trader can have in his/her arsenal and can be a significant asset to you if applied correctly.

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AUTHOR’S THOUGHTS

BASIC MODULEINTRODUCTION TO ELLIOTT WAVE PRINCIPLE

After a brief introduction into the Wave Principle and what it can do. Let’s take a step back in time and assess why this trading technique intrigues so many people.

Who was this man? Ralph Nelson Elliott was American accountant who, in the early 30’s, studied around 75 years’ worth of stock market data. The data consisted mostly of indexes from annual data, all the way down to 30 min charts. He discovered that the Stock Market did not move randomly and chaotically as it was initially believed to, and that it followed natural laws, which could be measured and predicted using the Fibonacci sequence (golden ratio). In short, Elliott identified that prices unfolded in specific patterns.

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Elliott developed this amazing analytical tool in the 1930’s. Then in 1938, he published his theory of market behavior in the book entitled ‘’The Wave Principle’’.

Elliott was a genius. His inspiration came from understanding the ‘Dow Theory’ which then progressed to a point where he could measure and predict significant Stock Market movement. Elliott understood the mechanics of trends and counter-trends and saw that Charles Dow (the founder of modern technical analysis) had indeed been correct with his theory. Elliott implemented his own thoughts and created a masterpiece, resulting in his unbelievable and accurate predictions of the Stock Market Crash.

Elliott’s theory intrigued many, especially after the book with the same name, “The Wave Principle” was published in 1978. In the book Robert Prechter and A.J. Frost rescue Elliott’s discovery from obscurity.

So, you see, even after more than 80 years, this amazing theory and pattern is still being used by hundreds of thousands of traders and investors worldwide.

What, why and how?

When setting goals, it is a must to ask these three questions. Thus far, we have covered the ‘’what’’ in the Elliott Wave explanation. The ‘’why’’ is very simple: Wave Traders use this tech-nique to trade better or more successfully and aim to generate a certain profit consistency. But “how”? That, my fellow traders, is the million-dollar question. The answer lies within the course.

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Disdain

CautionSkepticism

HopeDisbelief

ApprehensionShock & fear

SurrenderDisgust

Conviction DOW THEORYEnthusiasm

ConfidenceGrowing recognition

Time

R.N. ELLIOTT’S LEGACYAs previously discussed in the Author’s thoughts; Elliott believed that market cycles came about from investor reactions. The price action movements reflect investors buy or sell sentiment. Market cycles can be broken down into repetitive patterns which can then be broken down into waves. These waves are what we will be identifying, counting and analyzing in Elliot wave analysis.

Before we begin learning about patterns in the concept, we must remember that there are 3 commandments, stated by R.N Elliott that are imperative to the theory:

Impulse Wave 3 can never be the shortest wave Wave 2 can never retrace beyond the start of Wave 1 Wave 4 can never cross into the same price area as Wave 1

These rules, just like all rules in general, are bent sometimes, so don’t be afraid to think outside the box and question everything.What I would suggest is that when one of these 3 rules are broken, then a review needs to be done for the wave count.

With that being said, next we’re going to go over some important bullet-points to be treated as guidelines when using Wave Analysis.

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Wave 2can

NEVERgo

beyondthe start

ofWave 1

The Market has a law of its own and the progression unfolds in ‘’Waves’’, as R.N. Elliott called each Price Action Swing.

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BASIC SEQUENCE & WAVE PATTERNThere are 2 choices that one can make when applying the Elliot Wave theory to his/her charts and when counting the waves, Simple and Advanced. The Simple technique implies counting the waves normally (without any solid understanding) and the Advanced implies going more technical and recognizing the Impulsive or Corrective structure type.

We will start with the Simple Approach and then move towards the Advanced one and expand our trading senses.

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Wave Sequence:In a Dominant Trend, progress ultimately takes the form of 5 Waves, which are labeled with numbers; 1,2,3,4,5. Three of these swings, which are 1, 3 and 5, affect the overall direction in favor of the Domi-nant Trend. These Swings are known as Motive Waves or Impulses.Within the 5 Wave Sequence, the 3 Waves that unfold in favor of the Dominant Trend are separated by 2 countertrend interruptions, which are labeled as 2 and 4. These Swings represent a temporary interruption of the Impulse Waves, hence why they are called Corrective Waves.Simply put, the Wave Principle states that; a Full Cycle is made up of 8 Swings. The Market moves with 5 Waves in the direction of the Main Trend with 3 Waves against it.Once the Impulsive Phase is complete, then the Trend Corrective Legs unfold and act as a pull-back. Labeled A, B & C.

Structures: Impulsive or Motive Waves come in 3 forms: Extensions, Ending and Leading Diagonals. Corrective Waves come in 5 forms: Zig-Zag, Flat, Triangle, Double & Triple Three.

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Time for some fun facts!

QUICK FACTS & GUIDELINES

Price Action moves in patterns and usually has the magic numbers set to 3 and 5.

A Bullish or Bearish Elliott Cycle is formed out of 3 Impulsive Waves (1, 3 & 5), 2 Correc-

tive Waves (2 & 4 which correct the impulsive 1 & 3) and then follows the Trend Correc-tion legs - A, B & C.

So, if you don’t want to complicate things, you can apply the basic theory, 12345-ABC, simple right? BUT! It’s not that simple, if only it would be. If you aspire for greater accuracy levels, then the advanced technique would be of benefit.

Impulsive or Corrective Waves are Fractal by nature meaning that they are usually formed from other Elliott Waves. So, you will find an Elliot Wave within a larger Elliot Wave as each wave has ‘sub-waves’.

Impulse Wave 3 is usually the strongest swing but sometimes 5 can be just as strong. Traders can take profit on the 3rd Impulsive Wave then after the 4th Retracement Wave, they can get in again on the 5th Impulsive Wave. Or simply put, traders became accustomed to the Elliott method and this is why the 5th Wave tends to have a bigger impact on the charts, especially in the commodities market.

Most of the time, Impulse 3 contains an extension, which would imply Impulse 5 has the same length as Impulse 1.

Corrective Waves 2 & 4 can have 2 forms; Simple (3 moves) and Complex (5 moves). If Wave 2 is Simple, then Wave 4 will be Complex and vice versa, due to the Law of Alterna-tion. Usually, corrective wave 2 unfolds with a Zig-Zag Structure.

Sometimes, on rare occasions, the C Corrective Wave can transcend into Impulse Wave1.

Wave C always unfolds with a 5 Wave Sequence.

Wave B and Wave X always unfold with a 3 Wave Sequence and are known to be the cause of Market uncertainty, fake break-outs or even Structure change.tt

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ABC Correctives can provide a strong gain, depending on the size of the Impulsive Waves.This is because at the end of the 5th Wave, Divergences occur giving Traders the possibili-ty to spot the difference in the price action.For example in an up-trend a new high would be created while the volumes would decrease, meaning that Bulls pushed the Market higher but they are not justifying a continuation with enough liquidity, leaving room for Bears to take over.

When the Market goes into a Correction, the correction itself would often end its first swings inside the price territory of the previous Wave 4 of a lesser degree. This is valid exclusively for a Wave 4 which would end in the territory of the previous Wave 4, within the main Impulse 3.

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