Predict the Market with Harmonic Elliott Wave Analysis

In the section 2 you will learn that price never goes up or down in a straight line.

Every price chart tries to talk to you but you do not understand them because you do not know the language. A-B-C fractal is as important in trading as the letter A in the alphabet. Children start to learn reading and writing from learning the alphabet. This so exciting for a parent to see how kids first time recognize the letter A in a book. From that point the kid will quickly learn all the other letters and will start reading first words and then longer phrases.

All the markets move in zig zags because people are driving force of any market. And when human beings make decisions on buying and selling stocks, real estate, art or even cars or groceries they do that under influence of emotions and cognitive biases.

The vast majority of market participants are driven by emotions fear or greed. They chase price all the time. They buy when price goes up long enough to make them confident it will keep going to the moon.

They sell when price goes down deep enough to make them scared. First they see price falls under the level where they bought a stock. Then it continues to fall relentlessly day after day. You start looking for expert opinions and they say “the worse is not over”. This is when fear kicks in and you get confident price goes to zero and they will lose their money completely.

This section will teach you the simplest yet important rhythm of the market. One step forward, one step back and one step forward. That simple! It’s like a dance when partners make simple repeating moves but combination of those simple steps creates a beautiful performance. You will see how simple A-B-C moves of different sizes combined together form rallies and corrections

The first move in the wave A is the first action of the new A-B-C fractal. Wave A sets the tone for subsequent corrective wave B. Both, actionery wave A and correction in wave B, become a base for the final wave C that resolutes the fractal.

In Any A-B-C fractal the starting point is the low of the Wave A in up fractals and the top of the wave A in down fractals.

That starting point of the wave A should not be breached by subsequent waves B and C.

In up moving A-B-C fractals, after the first action in the wave A up, a corrective wave B down starts from the top of the wave A up. It can fall back all the way down to the starting point of the wave A. In that case we say that "wave B retraced 100% of the preceding wave A". However, in no case it can fall under the starting point of the wave A up. If that happens, we say that "the count gets invalidated". In other words we made mistake and incorrectly identified the first move off the bottom as wave A.

In majority of cases, corrective wave B down manages to retrace only part of the rally completed in the wave A, particularly from 38.2% to 85.4% of the distance covered by the preceding actionery wave A up.

Price never travels in a straight line for too long, it travels in zig-zags shaped as A-B-C.

Those "zig-zag" shaped moves are consisted of three segments we label as A, B and C.

The first move we call actionery move in the wave A.

The second move we call a correction in the wave B.

And the final third move completing a zig-zag is called "resolution" in the wave C.

There are two formal rules each A-B-C fractal should follow:

( 1 ) In up looking A-B-C fractal the starting point of the wave A is the main support for the whole A-B-C up fractal. Reactionery Wave B down may come back up to the lowest point of the wave A but never should go under it.

In down looking A-B-C fractal the starting point of the wave A is the main resistance for the whole A-B-C down fractal. Reactionery Wave B up may come back up to the highest point of A but never should go over it.

( 2 ) In up looking A-B-C fractals Wave C either retests or more often makes new higher high over a high made by Wave A. In down looking A-B-C fractals Wave C either retests or more often makes new lower low under a low made by Wave A.

In down moving A-B-C fractals, after the first action in the wave A down, a corrective wave B up starts from the bottom of the wave A down. It can get back all the way up to the starting point of the wave A. In that case we say that "wave B retraced 100% of the preceding wave A". However, in no case it can rise over the starting point of the wave A down. If that happens, we say that "the count gets invalidated". In other words we made mistake and incorrectly identified the first move off the top as wave A down.

In majority of cases, corrective wave B up manages to retrace only part of the preceding decline in the wave A, particularly from 38.2% to 85.4% of the distance covered by the preceding actionery wave A down.

In this video you can see that a strong decline off the top made by S&P 500 in October 2007 followed a clean A down - B up - C down structure.

In a corrective countertrend A-B-C structure, waves A and B are normally subdivided into three subwaves (a)-(b)-(c) and the final wave C Is subdivided into five micro waves (i)-(ii)-(iii)-(iv)-(v).

The most important part of that lesson is explanation of the way how a large A-B-C down starts to unfold in a slow way and every new move down gets bigger and bigger. That is a very strong argument against applying strategy focusing on catching the top of an impulsive five wave structure. Even if you catch the top, the first moves down will not be large and will not make big profit for you even if you short at the top.

“A fractal that helps to navigate through corrections”

RTY: 2020: Even an ugly wave B follows repeating pattern

RTY made a major top in August 2018 and since then it has been unable to make a new higher high. The sharp drop that bottomed in mid March 2020 completed a huge wave ( 4 ) down structured as (A)-(B)-(C).

This video reviews an internal  structure of a pullback in wave ( B ) up that lasted the whole 2019 year. Wave ( B ) is the most difficult to navigate because it is composed of A-B-C where B is itself composed of (a)-(b)-(c).

This video explores in depth uncertainty about the way how we could count waves in that corrective structure by using a standard fractal. That fractal describes in details all microwaves inside a Regular Flat corrective structure. If you learn and memorize that pattern you will feel much more confident navigating even through complex corrective patterns.

In the second part of the lesson we will use the very same fractal to analyze a pullback in RTY that happened in September 2020. You will see that (a)-(b)-(c) down structure nicely followed all the squiggles described by that fractal!

Five Wave fractal is the structure behind any trending moves up or down. If you want to benefit from trends you first should be confident you deal with a trending move. In this section I  will give you five simple rules that any five wave fractal should follow. Five simple rules that will change the way you trade trends. In following chapters of the course about the projection tool we will add one more rule number 6.

Five Wave Fractal is the backbone of any rally. We will study that fractal to know what the main stages of any rally are and how crowd sentiment changes in the course of any rally.

There are five waves in any trending move but only three of them are in direction of the trend. Two other waves are corrective waves. They move in countertrend direction.  Remember we learned that price never travels in a straight line? If you happen to buy a stock or crypto currency at the early stage of a trending move the ride will not be easy. Trending move does not mean every day will be a sunny day bringing you a higher price. There will be painful corrections in the process. Those who unprepared will be shaken out.

When other folks will be freaking out trying to find some rational explanation of a drop on news. They will be questioning the trend and most likely will throw in the towel very close to completion of correction. Wave analysis will let you predict and enjoy corrections turning them from a painful experience into long expected sale season when you can pay less when the crows lost hope.

There are two main distinctive fractals: A-B-C fractal and Five Wave fractal. This section will explain you that fractals have a magical feature. If you combine two five wave fractals with A-B-C fractal in between you will get another A-B-C fractal of a bigger size!

Each of those five waves itself is A-B-C fractal, because each of the waves 1,2,3,4 and 5 has A-B-C internal structure.

That feature of fractals makes wave analysis an exceptional trading tool. Imagine you have been following a rally with five wave fractal and it has completed wave 1,2 3 and 4. Your main question is how not to miss the top of that rally. Well because you know that wave 5 is itself an A-B-C fractal you first wait for at least wave A up and C down. Then you know you are left with the very final wave C up which will complete the wave 5 and the whole fractal. Again because of fractal nature wave C of 5 is itself composed on five waves! To nail the top you just zoom in switching to a lower timeframe and start counting the very final five wave up which would complete wave C of 5 and the whole big rally.

Fractal nature of waves turn make it possible to keep analysis as simple as counting large and small waves that compose large ones. You can be sure in two outcomes: the rally will be completed either by completing the whole structure in its small details (subwaves) or will invalidate itself breaking down one of the critical support.

Sooner or later you will memorize the look of the Five Wave up fractal. But that is the only first step on the way to mastery. In majority of cases in your trading you will face incomplete Five Wave up or down fractal. It is much more difficult to recognize an unfolding Five Wave fractal then a completed one. But if you manage to recognize it after completion of wave 2 down you will be able to make good money by betting your money on continuation of the trending move in wave 3. In this video I show you two examples to convince you it's not hard at all to recognize incomplete fractals. In fact your brain does many time a day. If you feed enough samples of some object to your brain it will store a library of different looks of those objects in its long term memory. And then it will need to see a small tiny detail of an object to recognize it and reconstruct an image of the whole object in your mind even if the part of the object is hidden or not visible.

Let’s dive in deeper into the most important five wave fractal. By the end of this course you will be able to identify that pattern in a heartbeat.

But so far we have focused on a completed five wave pattern. That means that when we have all five waves in place the rally is over. Our goal is to participate in the rally before it gets completed.

That is why we need to study how that five wave pattern unfolds step by step. Doing that you will start memorizing the looks of partially completed pattern at each stage.

Completion of each of those five waves provides you with additional information. For example, when impulsive wave 1 or 3 in direction of the trend tops out it gives you additional information to calculate the ultimate target of the move. We will study soon how length of wave 1 impacts the length of wave 3 and how combined length of waves 1 and 3 impacts the target for the wave 5. The lows of the corrective waves 2, B of 3 and 4 let you confirm that the structure is valid because each new corrective wave should make a new higher low. In terms of trading each completed corrective wave let you raise your stop to a higher level minimizing risk of a trade.

We will be talking about that five wave fractal again and again adding more details to embed in your mind picture of partially completed five wave up fractal. The goal is to make sure you start seeing it on any chart at a glance without thinking.

Any large corrective structure is normally followed by a new five wave up trending structure. Here you can see TSLA completed a wave 1 up off the low made in January 2023. Note (1) a clean A-B-C up subdivision of the wave 1 up. And, (2) note a clean five wave up micro structure of the subwave C of the wave 1 up

Here you can see a corrective wave 2 down that started off the high made by TSLA in July 2023. That large A down, B up, C down structure has a tricky subwave B up. It is considered to be tricky because it was shaped as the Running Flat. In the Running flat (a) up, (b) down, (c) up structure the corrective subwave (b) down manages to make a new lower low (under the starting point of the subwave (a) up, but the final subwave (c) up makes a lower high.

Every time you get the Running Flat structure you can be sure the next leg down will be strong. Because if price keeps making lower lows and lower high even while it is in a corrective wave B up you can imaging that bears will push price lower strongly in the leg down of the wave C down.