Elliott Waves Principle is a universal law of the market that was discovered by R.N. Elliott in the 1930s. What he found was that there was a regular wave pattern that was being repeated in the stock market over and over again. Later on this principle was found to be applicable to all the markets including the forex market.
What R.N Elliott found was that there are eight waves in any market cycle. 5 of these waves are in the direction of the trend and are known as the Impulse Waves while three are in the counter trend direction and are known as the Corrective Waves. Waves 1,3 and 5 are the Impulse Waves while waves 2 and 4 are the corrective or counter trend waves. Wave#3 is the longest impulse wave.
This Elliott Wave pattern can be seen on all timeframes from intraday to longer term like monthly to what R.N Elliott called the Grand Supercycle of 200 years. Each wave in a cycle can be further divided into smaller cycles.
We will be using three Elliott Wave Indicators in this strategy. This is a simple forex trading strategy that can be highly profitable.
On most of the charting software, you will find these three Elliott Wave Indicators as part of the advanced package. These three Elliott Wave indicators are:
1. Elliott Wave Trend (ET)
2. Elliott Wave Number (EN)
3. Elliott Wave Oscillator (EWO)
Now, these are the rules that you need to follow for entering a long position: EN that counts the number of Elliott Waves should be either 3 or 5. As said above, wave#3 is the longest wave and if the EN is 3, it means a highly profitable trade. ET should be either 0 or 1 while EWO that measures the momentum should be a positive number, the higher the better. The three indicators when line up together, enter into a long trade and exit when EWO become negative.
And these are the rules for going short: EN should be 4. ET should be 0 or -1 and EWO should be a negative number. These three things must happen at the same time. Exit your position when EWO becomes positive. You can use this Elliot Wave Trading Strategy on stocks as well as on commodities. This strategy can be used on smaller timeframes like the 5 minute charts as well as on longer timeframes. Good Luck!
Get this highly profitable Magic Breakout Forex Strategy by Tim Trush and Julie Lavrin FREE. Get these Correlation Trading Cheatsheets FREE.