Hello,
I’m a person who wants to get into trading Forex and I had just started learning on BabyPips :D.
Just finished with the Elliott Waves chapter and I have a question which I could not figure out by reading materials beyond this site…
I will first state what I understood about Elliott Wave theory.
Say one successfully identifies the impulse pattern(1-2-3-4-5) and the correction pattern(A-B-C) in let’s say an uptrend.
Initially I assumed that this theory states that once the price has moved according to this pattern(1-5 impulse waves then A-C corrective pattern) the price is supposed to reverse and go in the opposite direction(hence the name ‘corrective’ pattern). But apparently I was wrong as the price can very well continue in another 1-5 pattern in the same direction and not reverse.
My question is the following:
Once we identify the 1-5 and the A-C corrective pattern on a price chart what are some strong indicators that the price will reverse or continue? How do we decide whether to keep riding the trend or go against it?
Please give some hypothetical examples if possible so I can understand this better. Thank you!
That is the 6 million dollar question. With regards to the Elliott Wave theory I believe there is a lot of merit in that theory. However with anything in trading it is impossible to predict what the market will do. We can only look at what is on the charts and then trade exactly that, what we see. If the trend continues further than the 5 wave pattern then yes we can trade that extra 1, 2, 3 waves of the trend. But the question needs to be asked once we go past that 5 wave pattern just how much momentum is left in the market to take price action further in the direction of the current trend.
The old saying “the trend is your friend until in bends or it ends” is very true. I personally wont trade a trend past the end of the third wave but that’s because I am a price action trader and I work on a 3 wave pattern.
One thing is for certain the moment you get a lower low in a bull trend and a higher high in a bear trend it is a good sign that the trend is coming to an end.
I believe a good idea for you would be to research some information about the Wyckoff Method as it is very handy to know that theory in determining how and when to recognise the end of a trend and a possible trend reversal.
Cheers
Blackduck
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Thanks for the answer BlackDuck ![:smiley: :smiley:](https://f.bpcdn.co/images/emoji/twitter/smiley.png?v=9)
As with any theory the Elliot Wave Theory is just a theory! Sometimes it will work. But don’t count on it because it’s a theory. Not a scientifically proven law (like gravity).
Gravity works tou if I jump of something head first I will regret my decision ![:smiley: :smiley:](https://f.bpcdn.co/images/emoji/twitter/smiley.png?v=9)
Joking ![:stuck_out_tongue: :stuck_out_tongue:](https://f.bpcdn.co/images/emoji/twitter/stuck_out_tongue.png?v=9)
Thanks for the answer!
It’s a great indicator. It is not for nothing that it is included in many classic and modern strategies…
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I think that many people absolutely unfairly underestimate this approach, because it seems to be something complex and ambiguous at first glance. But over time you start to understand it better and you realize that it can be used on a permanent basis.
Thanks for the reply, sorry for my late reply.
That’s a question for which there is no guaranteed answer. This is just a theory. Market will not 100% function in a predictable manner.