Best Technical indicators Eliot wave theory ( Secret trick to use it by using 1-2-3 rule) – NEW.
Best Technical indicators Eliot wave theory ( Secret trick to use it by using 1-2-3 rule) – NEW.
The Elliott Wave Theory is a technical analysis tool that posits financial markets move in repetitive cycles or waves, influenced by collective investor psychology. These waves are categorized into impulse waves and corrective waves.
Impulse Waves: These consist of five sub-waves moving in the direction of the main trend:
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Wave 1: Initiation of the trend.
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Wave 2: Minor correction against the trend.
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Wave 3: Typically the strongest and longest wave, continuing the trend.
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Wave 4: Another correction, usually less severe than Wave 2.
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Wave 5: Final push in the trend’s direction before a larger reversal.
Corrective Waves: These are composed of three sub-waves (A, B, and C) that move against the main trend.
Key Rules of Elliott Wave Theory:
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Wave 2 cannot retrace more than 100% of Wave 1.
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Wave 3 cannot be the shortest among Waves 1, 3, and 5.
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Wave 4 must not overlap with the price territory of Wave 1, except in diagonal patterns.
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Applying the 1-2-3 Rule:
The 1-2-3 Rule is a practical application within the Elliott Wave framework to identify potential trade setups:
Identify Wave 1: Spot the initial move indicating a new trend.
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Observe Wave 2: Wait for the corrective phase that doesn’t exceed the start of Wave 1.
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Enter on Wave 3: Initiate a trade in the direction of Wave 3, which is often the most powerful wave.
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Secret Trick: Combining Fibonacci retracement levels with the 1-2-3 Rule can enhance accuracy. Typically, Wave 2 retraces about 61.8% of Wave 1. Monitoring this retracement level can provide a strategic entry point for Wave 3.
Caution: While the Elliott Wave Theory offers valuable insights, it’s essential to use it alongside other technical indicators and risk management strategies to account for its subjective nature and the complexities of market behavior.
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