How to Trade Elliot Waves + Examples

Hi everyone This is Stephen. And welcome back to this wealthy education video on advanced technical analysis. Today we're going to be talking about trend analysis indicators and our first indicator is the Elliott Wave. So let's talk about the Elliott Wave. The Elliott Wave was developed by Ralph Elliott who believed that human psychology which is apparent in the markets moved between optimism and pessimism. Mr. Elliott thought that this optimism and pessimism resulted in the markets moving up and down or a wave pattern the wave pattern is the result of five different legs in the market five legs up and five legs down. The first move up is way one which is called an impulse wave and then wave to which is a pullback or retracement is called a corrective wave. You then have wave theory which is usually the strongest of the waves a corrective wave for and then a final push which is way five. And this wave usually results in a correction and a reversal in the opposite direction. The waves should be used in combination with other indicators such as parallel channels that we covered in another video and the waves can help us identify support and resistance and the trend. You can also combine the waves with Fibonacci lines and the corrective waves should line up with your Fibonacci retracement points. So let's take a look at Elliott waves on a chart and how they can help with our trading where is a chart of the S&P 500 to drop Elliott Wave and to show how we can trade using the Elliott Wave indicator first we're going to go to the left hand side choose Elliott impulse wave. On a find in the chart a double bottom. So we have a reversal indicator. So now we're going to have the beginning of our Wavves we're going to start at the bottom of the chart draw a line click and hold. Draw a line up to this high. We're going to click there that's our wave number one. Often the wave number one is difficult to identify until the pattern has already begun to form because many people think this is a retracement to the upside that will be followed by a further leg down. We're using our double bottom as an indicator that the market has turned up. So now we're going to draw our wave number two which ends here. We clicked the mouse and it puts it our second wave which is a corrective wave. Our third wave includes some sideways action. But then the market continues to move up and here will be our third wave which is often the largest wave will move down and draw a wave number four which again is another corrective wave and that will have wave number five. And there's our Elliott Wave pattern. Now one way to trade with the Elliott Wave pattern is to connect points one in three. So we'll move over here. And where to draw trend line so connect points 1 in 3 moving up and now we're going to connect points to and for also what the trend line that's going to give us a channel to trade in. So we have both the Elliott Wave which gives us a channel and then we have a larger channel by connecting two and four and one and three. Often the fifth wave will not rise to the top of the channel so we can put in a third trend line. And the middle of our channel to predict where wave 5 will end so we can use this as a sell point. We don't want to get short because we're still in an uptrend and then we can use our channel and when the S&P drops through the channel that's our sell point or the point where we want to get short. So you can use both the Elliott Wave as support and the channel support but you'll see the market doesn't trade down to the bottom of the channel but does trade down to the bottom of the Elliott Wave. So by using the Elliott Wave in combination with the channel we're able to predict support at various points and the uptrend and trade long as the market moves back to the support levels here and here we will get long and then either sell our long position or go short as we break through the channel to the downside. So that's the Elliott Wave in combination with a parallel channel. Now let's go to a 30 minute chart. And see that we could use our Elliott Wave on a much shorter time frame in combination with our channel here when we come to the bottom. Our Elliott Wave that support we could trade the 30 minute against both the metal line we've drawn in our channel as well as the upper portion of the channel. We come back find a little bit of support at the midpoint of the channel and then we find major support on our Elliott Wave line and you'll see the market rides the Elliott Wave line moves to the upper part of our channel which we could use as a cell signal and then falls back breaks through our Elliott Wave line and then eventually breaks through the lower part of our channel so we can play several trades in a short timeframe on the 30 minute chart using the Elliott Wave in combination with the channel. I'd like to thank you for watching this video on trading the Elliott Wave at our next video will be talking about the exponential moving average. I look forward to seeing you in the next video.