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Day Trade Using Elliot Wave Principle
Introduction:After extensive research on the Elliot wave theory with an objective to simplify it to an maximum extend so that it can be understood by the trader community I have come across with many issues and some simple and gentle solution. I have developed one calculator based on those achievements however this tool only attends the limited logical part of the wave theory.The wave approach of analyzing the price of stock, index or commodity starts with the cycle. This debated word “cycle” means the occurrences of similar kind of trend in future. In wave approach the cycle is again simplified by the way of classifying it in time frames. For example the grand super cycle is the name given to a trend which happened or reoccurs once in a decade.
Why cycle is so important for us?
Answer is so simple. Say the average lifespan or life cycle of human is 70 years. This means the older generation dies or disappears in every 70 years and new generation having the similar behavior, life style, habits fill that gap. Many such examples we are experiencing on cycle every day in our life. Hence I can conclude with at present what ever we are experiencing in nature was being experienced by our ancestors some time in past. This may be the literary definition of cycle and sounds much philosophical.The 2nd principle followed by wave principle is "Every price action in a cycle is harmonic in nature". Based on these two principles Elliot gave a set of rules and guideline for constructing the price waves in a harmonic cycle. The price trends never follow all the guidelines given by Elliot. However it follows all the rules. The price and time action rules to form a wave pattern are derived from the Fibonacci ratio. Totally 8 different waves are being classified grouped into two categories
Impulsive waves: In this category 5 waves are placed and named as 1-2-3-4-5 .
Corrective waves: in this category 3 waves are placed and named as A-B-C .
The confirmation or completion of wave 2 and wave B are used by the traders to take a long and short position in a particular counter. However during the process of this journey of completing the “Impulsive harmonic cyclic” pattern the wave pattern meet with many guide line or rule violations.