Education

# How to Trade Elliott Wave ?

NSE:NIFTY   Nifty 50 Index
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In Elliott Wave theory the 5 wave move in the direction of the trend is also called motive waves, while the 3 waves corrective move against the 5 wave move is also called corrective waves.
This is quite useful because we can now break any price trend movement into this basic 5 – 3 wave pattern. Knowing that each impulsive and corrective move is a series of waves oscillating up and down we can conclude that we can have waves within waves.

This means that a five wave sequence in one-time frame might be simply just the first wave in a longer time frame. In other words, this is simply confirming the fractal nature of the markets theory.

Let’s lay down some of the rules of the Elliott Wave strategy that can assist us in determining to find good Elliott Waves entry points.

• Elliott Wave Strategy Rules
The Elliott Wave strategy needs to satisfy and abide by some strict rules in order to validate the 5 wave move. The three basic rules
• Wave 2 never retraces more than 100% of Wave 1. Typically, the retracement is between 50% and 61.8% of wave 1.
• Wave 4 never retraces more than 100% of wave 3. Typically, declines between 38.2% and 50% of wave 3.
• Wave 3 always travels beyond the end of wave 1 and it’s never the shortest one; Wave 3 will normally extend 161.8 x
wave 1.
My favorite way to play the Elliott Wave strategy is to let the first 4 wave movement unfold and then to find good Elliott Wave entry points near the end of wave 4 in an attempt to catch the last wave of the entire 5 Elliott Wave sequence.
If wave 3 is the longest wave, then wave 5 will roughly equal wave 1.
Wave 2 and Wave 4 will alternate. If wave 2 is a sharp correction, wave 4 is a flat correction and vice versa.
After a five Elliott Wave sequence is completed the ABC corrective waves usually end in the vicinity of wave 4 low point.

Step #1 Wait until you can spot at least a 3 wave Elliott Wave sequence
Step #2 Sell between 38.2% and 50% Fibonacci retracement of Wave 3
Step #3 Place the Protective Stop Loss few points above the Wave 1 Ending Point
Step #4 Take Profit when Wave 5 is equal to Wave 1 or when we break below wave 3

Conclusion
Billionaire hedge fund manager Paul Tudor Jones is well-known for being an Elliott Wave practitioner. If the 120th richest person on the Forbes 400 list is using the Elliott Wave strategy you should not be the fool who ignores it. The Elliott Wave strategy has stood the test of time and if you’re just getting your feet wet in the trading business this is definitely a good starting point if you want to build a fortune.