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August 6, 2016

Elliott wave Theory and the right Execution

Elliott wave Principle was develop around 1930’s and since then many traders have been follow the theory and applying it in their everyday trading. We all know life is not perfect and nothing is 100% correct, same applies to the Elliott wave Theory. We have been trying over the last 11 years to take away the subjective nature of the Theory.

The Main thing is that the Theory fails in many aspects and we need to keep in mind that it developed based on Indexes which are not the same market as let’s say the Commodities or Forex. The big Difference is the Trend, every Professional trader knows that Indexes trend while on the other hand the Commodities and Forex are more of range markets. This presents huge differences when it comes to applying the Elliott Wave Theory and executing trades based on the theory in these markets. Execution is huge in Trading and also a part of practicing the Elliott wave Theory, below we will mention some points which every trader needs to know in order to apply and execute the Theory properly.

  1. Understanding the Market you are trading whether it is Indexes, Stocks, Commodities or Forex. There are huge difference among them when it comes to labeling. For instance within the Indexes and Stocks, the trend comes mostly in 5 waves whereas in Forex and Commodities instruments, the trend comes mostly in sequences of 3 waves. The Theory fails in this topic about identifying the Market.
  1. The Market works in Price and also in distribution, the Elliott wave Theory is based only in Price which fails to identify the false break of significant highs and lows leaving the Traders following a 5 waves move looking for minimum another leg in the direction of the 5 wave move and then seeing the Market going against the 5 waves. Distribution is the amount of space that the Market travel in a period of time related to the strength. Distribution tells us whether the 5 wave move is reliable or not, in other words whether it is the first leg of a minimum 3 wave move or part of a FLAT correction.
  1. The Elliott wave Theory cannot be used as the only tool to trade. Traders need to understand that when the Theory was created there were no computers or indicators which is something that traders need to implement a system which could help them to avoid the subjective part of the theory and at least confirm when a 5 waves is real or part of a FLAT.

After all the Traders need to understand that The Theory was developed in 1930’s, and following the 5 waves and 3 waves back cannot be seen as reliable as the Theory can present. The Theory lacks a lot of adjustments to make it a reliable trading tool on it’s own. The Theory is a great observation which discovered the fractal movement in the Market either in 5-3-5 or 3-3-3 advance, but to believe the Theory by itself is good enough to trade is a mistake.

We hope you enjoyed reading this article and if you would like to see our forecasts based in market cycles, swing sequence, market correlation and distribution combined with the Elliott Wave Theory, sign up for a Free 14 day Trial of our services.