An Elliott Wave Trading Strategy
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.
Price action can be divided into tends and corrections or sideways movements. Elliott Waves Theory stipulates that markets move in repetitive patterns. There is always a five wave advance ( impulse waves) and a three wave decline (corrective waves). Waves 1, 3 and 5 are the impulse waves, wave 3 being the longest. Waves 2 and 4 are the corrective waves. These impulse waves are the trends in the market and the corrective waves are the sideway movements in the market.
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.
These three Elliott Wave Indicators can be found on most of the charting software. These three indicators are:
1. Elliott Wave Trend (ET) 2. Elliott Wave Number (EN) 3. Elliott Wave Oscillator (EWO)
Now, ET tells about the trend direction while EN tells about the wave number and EWO measures the momentum. When you find, EN either 3 or 5, ET either 0 or 1 and EWO above 0, enter into a long position and exit when EWO becomes 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.
This Elliott Wave Trading Strategy can be used from 5 minutes chart upto daily and even weekly charts and even higher. You can also use it on stocks. Always remember to use a stop loss when trading with this strategy.
Article Source: FxTradingStock.com
About the Author
Mr. Ahmad Hassam has done Masters from Harvard University. Get these Forex Scalping Cheatsheets plus the 10X Scalping System FREE. Master these profitable Forex Patterns With The FREE Magic Forex Candlesticks And Magic Forex Divergence.
by: Ahmad Hassam
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Word Count: 363
Date: Thu, 23 Dec 2010
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