Ways of trading Elliott waves

Ways of trading Elliott waves

A long time ago we wrote an introduction to the Elliott wave tutorial covering the basics of Elliott Wave theory. You may refresh your memory by reading this article. The time has come to fill you in on more upgraded trading techniques of the Elliott wave principle. In this following article, we will tell you about the three ways of trading Elliott waves. But first, you should learn to identify the entry, stop loss, and exit points.

Suppose you started counting you wave from a certain price swing. It should be followed by a small retracement usually not exceeding 50% of the length of the first wave. It is actually a cardinal rule of the Elliott wave trading – the second wave shall never go beyond the start of the first one. If price retraces more than 100% than your wave count is wrong. The start of the third way is a very strong buy signal. Normally, it is the longest wave in the whole cycle. The second cardinal rule is that the fourth wave can never end in the price territory of the first one.

Trading the third wave of the Elliott cycle


As you might remember the third wave is the longest and most powerful in the price action cycle. It must be bigger than 161.8% of the other non-extended waves. The second wave retraces 50 – 61.8% from the first wave peak. What you can do in a long trade is to place a pending but limit order somewhere between 50 – and 61.8% of the first wave (and within the length of the second way). Take profit should be placed at 161.8% from the end of the second wave; a stop loss can be found at the very start of the trading activity.

Trading corrective trade patterns in the market movement cycle


Each corrective pattern has an a-b-c structure. If a-b-c waves are moving sideways (if there is a flat formation), it means that price may just begin a new impulse wave on Wave C ends.

Trading the fifth wave


Before starting to trade the fifth wave you should remember that it shouldn’t be equal the first wave. The following rule allows traders to measure the already formed first wave and project its length from the fourth wave’s end (constantly bearing in mind that the fifth wave should be different). We recommend looking for 61,8% of the first wave and projecting it from the fourth one. Then go short at the end of the fifth way in the bullish five-wave structure targeting 38.2% retracement from the whole swing. If a wave is corrective (not impulsive), there will likely be 61.8% retracement.


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