Elliot wave is one of a very
successful and common method of trading, it depends
on the psychology of the traders, and it can tell if
the trend going to stop in some point, or going to resume
the trend.
Elliot wave consists of 5 waves, 3 of
them in the trend direction and two wave as a pullback,
we're not going to talk in more details about
Elliot wave here, but what we're going to do is to find a
common points between Elliot wave and the common fore charts
pattern, like 123 pattern, bat pattern,....
Finding such
common points, will help you to see the charts more clearly
and put you in the market action then helping you taking the
right decision.
Elliot Wave
Rules
First we want to take
a general look at Elliot Wave Rules, to work with an
Elliot Wave you must make sure that you're working with a
valid one, the most important point in Elliot wave
that every wave end point never exceed the previous wave
start.
So while we're
waiting wave No. 2 to end, we have to make sure that its end
never exceeds wave 1 start point, if it's happened so the
Elliot wave we have is not valid.
According to
Elliot wave rules this is a valid one In the image above, it's a bearish Elliot wave converted to a 123
formation, like you see we had a strong bearish momentum (wave 1) then small
pullback makes wave 2, then the momentum resumed to form wave3, and the same
for wave 4 and 5, but here after wave 5 we had a strong pullback exceed the
previous start, it means our calculation for Elliot wave is correct and we
finished the 5 Elliot waves, and there are a new bullish Elliot wave start to
begin.
It also means
that the market stopped to go down and make a reverse move to
go in the other side, and here it's our rule to trade and 123
formation, Point 1 is the end of 5th Elliot wave, followed by
points 2 and 3, using Fibonacci Expansion tool will help you
to draw the 3 points and defines your target levels
successfully.
In this
article we tried to make a connection between Elliot wave and
123 chart pattern formations, hope it was clear enough to help
yo enhance your trading skills.
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