It depends on whom you ask.

The Elliott Wave theory has been around for more than a century and has been an extensively researched and traded technical analysis methodology used by numerous authors and traders. Surviving the scrutiny of Wall Street over the years sure makes a good case alone, but it has been and still is its accuracy and predictability that push it through the ranks.

The problem is, if the Elliott Waves theory does not meet traders’ expectations, be it accuracy predictability or, simply put – making money, then Elliott Waves do not work. However, a trader who has mastered Elliott Waves, or at least understands its perks better, similarly to understanding technical analysis – be it advanced or not, has most certainly benefited by it, if not made a killing.

So, it all comes down to how familiar traders are with the tool, how deep their understanding is, and whether they have previous experience with other trading tools, such as price action, momentum, and basic pattern analysis.

In that sense, we must explain what Elliott Waves are and what they are not exactly.

What are Elliott Waves?

The Elliott Wave principle is one of the most valuable tools for trading for traders because it allows them to predict the course of the market with high accuracy by using repetitive patterns identified over the period of the markets’ existence to project price movements. It’s not a strategy.

Using momentum to determine the probable direction of the market trend, an Elliott Wave is a progressive movement in that primary trend, called a motive wave. But at the same time, an Elliott Wave is also the regressive movement moving against the primary trend in the short-term, called the corrective Elliott wave. In total, there are eight waves in one cyclical move, made out of five waves up and three down in a bullish market, or vice versa in a bearish market.

Dividing the motive wave into five numerical waves, waves 1,3, and 5 are motive waves themselves and approximately of the same length except for one of the waves being often more extended than the other two. Waves 2 and 4 are short-term interruptions broken into three or five-wave alphanumerical patterns.

There are two types of motive waves: impulses, where waves 1,3 and 5 are impulsive, and diagonals. The former shows progress as there is no interaction between the corrective zones; in the latter case, though, there is overlap. The overlapped diagonals variations are called leading and ending.

Recognising the twelve Elliott Wave patterns is the greatest accomplishment in a trader’s journey. Those are the impulse, the leading and the ending diagonal, the simple, double and triple zigzags, the double and triple threes, the regular and irregular flats with its running and expanding variations, and the triangle, which are all made by different structures based on Elliott Waves. And they can be pretty predictive if used effectively.

How Can Traders Use Them Effectively?

Elliott Waves come with rules and guidelines Ellioticians must apply when recognising patterns. Without studying these patterns, which is strictly advised, especially regarding rules, it is challenging to understand how powerful a tool Elliott Waves can be.

Using those rules and guidelines will set you up for good as you’ll be able to identify a wave structure before it begins, and once you validate it, you will be able to project its direction and potential price reach with high accuracy.

Elliotticians’ second best friend is the Fibonacci tool based on existing price structures observed over time. After all, most of the guidelines are based on Fibonaccis.

Are Elliott Waves for Me?

To begin trading Elliott Waves effectively, you must first identify five and three-wave structures, all Elliot Wave patterns, and equip yourself with the ability to connect the dots by thinking of possible combinations the patterns can complete.

The market does not have perfect waves to throw at you. However, an Elliottician should see the typical impulse or correction and project price levels in preparedness for testing which of the patterns fits the existing pattern.

Once countless hours are spent on studying and practicing, of course, the wise traders will be able to devise a main and its alternative scenarios based on probabilities and will be all set to start placing pending orders.

Takeaways

Elliott Waves work for those determined to work hard and use them as a trading tool, but they don’t for those you aren’t. They are certainly not for the light-hearted as they require countless hours of reading and putting in practice, patience, and a razor-clear focus.

Those who understand how Elliott Waves work have a better chance of mastering Elliott Wave trading. Those have certainly experienced EW’s predictive nature on someone else’s charts. But those who haven’t or choose not to read about them will most probably pass judgment on its subjectivity without having gotten their hands on them at all, simply because they’re not convinced a trading methodology can make them money.

Don’t let them win. Be top. Be an Elliott Waves trader.

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