{"id":97152,"date":"2016-10-30T10:41:24","date_gmt":"2016-10-30T14:41:24","guid":{"rendered":"http:\/\/countingpips.com\/?p=97152"},"modified":"2016-10-23T10:41:52","modified_gmt":"2016-10-23T14:41:52","slug":"wave-analysis-more-valuable-than-traders-realise","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2016\/10\/wave-analysis-more-valuable-than-traders-realise\/","title":{"rendered":"Wave analysis: more valuable than traders realise"},"content":{"rendered":"
October 30, 2016<\/div>
\r\n<\/div><\/div>

By Admiral Markets<\/b><\/p>\n

\"pablo<\/h1>\n

Dear Traders,<\/p>\n

Many Forex and CFD traders try to apply the Elliott Wave theory for a short while…<\/p>\n

…but the majority quickly moves on to the next indicator or tool.<\/p>\n

Why does this happen?<\/p>\n

Most traders understand, at least partly, the wave theory but find it difficult to apply it to real trading situations.<\/p>

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<\/div>\n

Sounds familiar?<\/p>\n

Well, my goal is to provide a
\npractical <\/em>solution to traders who want to give wave analysis<\/a> a chance.<\/p>\n

This article explains a simple step-by-step approach that allows traders to
\ngradually<\/em> start using wave analysis.<\/p>\n

Please note that this is
\nnot <\/em>a guide which explains the wave theory itself.<\/p>\n

Our wave ebook covers this part in more detail \u2013 feel free to sign up below:<\/p>\n

\"Wave<\/a><\/p>\n

Why Forex and CFD traders struggle with wave analysis<\/h2>\n

Each trader has their own experience and difficulties with trying out wave analysis.<\/p>\n

However, most traders give up on wave analysis due to one of the following reasons (I included solutions after the arrows):<\/p>\n

    \n
  1. not knowing the wave theory \u2192 learn theory<\/li>\n
  2. not able to apply wave theory on the charts \u2192 build experience<\/li>\n
  3. insecure about their wave application (wave count) \u2192 build experience<\/li>\n
  4. trading wave count too soon without experience \u2192 step-by-step process<\/li>\n
  5. applying a full wave count from the start \u2192 step-by-step process.<\/li>\n<\/ol>\n

    The biggest problem is that traders expect too much too soon from wave analysis (point 4 and 5).<\/p>\n

    They immediately rely on waves for
    \nall <\/em>of their trading decisions…<\/p>\n

    …however, wave analysis is most useful for understanding the market structure and as a confluence tool \u2013
    \nespecially <\/em>when starting to use waves for trade decisions.<\/p>\n

    Applying wave analysis is a step-by-step process that cannot be rushed.<\/p>\n

    The second-biggest problem is that traders feel insecure about their wave approach.<\/p>\n

    Logically, it takes
    \ntime<\/em> to build up experience with applying waves.<\/p>\n

    Traders simply cannot expect to take the best wave trades right away from the start.<\/p>\n

    The solution: gradually apply trading waves<\/h2>\n

    As I often say in
    \n    live webinars<\/a>, there are roughly five steps in a trader’s transition from not applying waves to fully labelling waves on multiple time frames.<\/p>\n

    Let me be clear that one step is
    \nnot <\/em>better than another.<\/p>\n

    They are all equal \u2013 Forex and CFD traders need to find one that suits them best.<\/p>\n

      \n
    1. Not using waves, swing or impulse and correction.<\/li>\n
    2. Using swings, impulse and correction.<\/li>\n
    3. Looking at multiple swings.<\/li>\n
    4. Partial wave count labelling.<\/li>\n
    5. Full wave count labelling.<\/li>\n<\/ol>\n

      \"pablo<\/h2>\n

      The first steps in using waves<\/h2>\n

      The best place to start is to analyse whether a swing (a group of candles) is moving:<\/p>\n

        \n
      1. as an impulse<\/a> (momentum); or<\/li>\n
      2. as a correction<\/a> (corrective).<\/li>\n<\/ol>\n

        This is the first key step when analysing waves because traders are decomposing the story and psychology behind the moves.<\/p>\n

        For instance:<\/p>\n

          \n
        1. a bullish corrective swing \u2192 I could expect a choppy upside until a bigger resistance appears (depending on the market structure)<\/li>\n
        2. a bearish momentum swing \u2192 I could expect a shallow pullback and momentum continuation that pushes beyond support (depending on the market structure).<\/li>\n<\/ol>\n

          A trader’s ability to understand the market structure will increase just by learning what impulse and correction are and knowing how to recognise them.<\/p>\n

          The next step is to connect multiple swings and understand the flow behind them.<\/p>\n

          By analysing
          \nmultiple<\/em> swings instead of just one, traders can build a larger understanding of the market structure.<\/p>\n

          For example:<\/p>\n

          …the current swing is the start of a bearish impulse and the previous two swings were bearish impulse and bullish correction…<\/p>\n

          …a trader could conclude that a continuation of the bearish momentum is likely.<\/p>\n

          \"EURAUD.png\"<\/p>\n

          Only now start with labelling<\/h2>\n

          Usually, Forex and CFD traders start with the labelling waves, but the most important step is to understand momentum and correction.<\/p>\n

          Practice this first with dedicated engagement before moving on.<\/p>\n

          Once you see your experience grow, it’s time to add and label wave counts:<\/p>\n

            \n
          1. add the wave count when the wave structure is clear (find logical pieces and skip difficult parts)<\/li>\n
          2. monitor whether the wave count, invalidation levels and confirmation levels worked out and learn from the process<\/li>\n
          3. learn from the feedback to gain experience<\/li>\n
          4. start adding wave counts when it’s useful and beneficial (either partially or fully).<\/li>\n<\/ol>\n

            For more information on wave rules and guidelines, see the video below.<\/p>\n