Using Elliott Waves to Trade Forex

This is most likely what you've all been waiting for - drumroll, please – the application of Elliott Wave Theory to FX trading!

You will be detecting “wave counts” as an Elliott Wave trader.

This means you'll be identifying the waves to see how they align with the Elliott Wave pattern in order to predict future price movement.

We'll look at some setups in this section and use our Elliott Wave expertise to establish entry, stop loss, and exit locations.

Hypothetical, most-likely-to-be-correct situation #1:

Let's imagine you wanted to start counting waves. As you can see, the price appears to have bottomed out and is now moving upwards.

You name this rise up as Wave 1 and the retracement as Wave 2 based on your Elliott Wave expertise.

You return to the School of WikiFX to determine which of the three cardinal rules and principles you could follow in order to discover a decent entry point. Here's what you discovered:

Number two rule: Wave 2 can never go further than the beginning of Wave 1.

Fibonacci retracement levels are typically used by waves 2 and 4.

So, using your superior Elliott Wave trading skills, you pull out the Fibonacci tool to determine if the price has reached a Fibonacci level. Oh my goodness, mother!

The price is currently hovering around the 50% mark, just like ice cream. Hmm, this could be the beginning of Wave 3, which would indicate a strong purchase signal.

Because you're a savvy forex trader, you also evaluate your stop loss.The second cardinal rule indicates that Wave 2 can never go further than the commencement of Wave 1, so you should set your stop below the previous lows.

Your wave count is incorrect if the price retraces more than 100% of Wave 1.

Let's wait and see what occurs next.

Your Elliott Wave analysis paid off, as you were able to catch a massive rising trend!

You go to Las Vegas (or Macau), overconfident that everything you touch would turn out to be a winner, lose all of your forex gains playing roulette, and end up precisely where you started.

In a casino, there are no Elliot Waves.

Fortunately for you, we have another hypothetical scenario in which you can earn fictitious money.

2nd scenario:

Let's apply your knowledge of corrective wave patterns to get those pips this time.

On a downturn, you start counting the waves and note that the ABC corrective waves are moving sideways.

Is this a flat formation in the making？ As a result, once Wave C ends, price may merely start a new impulsive wave.

You sell at the market price, trusting your Elliott Wave talents, in the hopes of capturing a new impulsive wave.

Just in case your wave count is off, you position your stop a few pips above the start of Wave 4.

Because we like happy endings, your Elliott Wave Theory-based trade plan pays off and netting you a couple of thousand pips on this particular day, which isn't always the case.

You've also learnt your lesson this time, so instead of going to Vegas, you decide to invest your winnings in your forex trading account.