This strategy is based on Elliott Wave Theory, a technical analysis tool used in financial markets to identify price movement patterns.
Cheat Sheet 1: Wave 3 Buy Conservative Setup
Requirements before trading:
1. The larger wave (Wave 1) must be in a bullish direction.
2. Wave 1 must contain 5 smaller sub-waves that follow the rules of the Motive Phase.
- Optional requirement:
You can observe divergence on the RSI indicator between the sub-waves 3 and 5 of Wave 1.
How to set up Wave 3 trade:
- Entry Point: Use the Fibonacci retracement tool and draw it from the start to the end of Wave 1, then place a pending buy order at the 50% level of Wave 1.
- Stop Loss: Use the starting point of Wave 1 as the stop loss level.
- Take Profit: Use the Fibonacci expansion tool and draw it from the start to the end of Wave 1, then extend it from the end of Wave 2. Set profit targets at 100% and 161.8% of the extension of Wave 1.
Tips for trading Wave 3:
1. Move the stop loss to break even after reaching the first take profit target (TP 1).
2. Check the number of smaller sub-waves after reaching TP 1. If you see 5 waves, close the position completely.
- Recommended risk: 1% or 2% of capital.
Chart:
- The chart shows how to identify entry and exit points using Fibonacci levels, with Wave 3 extending to reach 100% and 161.8% targets of Wave 1.
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Cheat Sheet 2: Wave 3 Sell Conservative Setup
Requirements before trading:
1. The larger wave (Wave 1) must be in a bearish direction.
2. Wave 1 must contain 5 smaller sub-waves that follow the rules of the Motive Phase.
- Optional requirement:
You can observe divergence on the RSI indicator between the sub-waves 3 and 5 of Wave 1.
How to set up Wave 3 trade:
- Entry Point: Use the Fibonacci retracement tool and draw it from the start to the end of Wave 1, then place a pending sell order at the 50% level of Wave 1.
- Stop Loss: Use the starting point of Wave 1 as the stop loss level.
- Take Profit: Use the Fibonacci extension tool and draw it from the start to the end of Wave 1, then extend it from the end of Wave 2. Set profit targets at 100% and 161.8% of the extension of Wave 1.
Tips for trading Wave 3:
1. Move the stop loss to break even after reaching the first take profit target (TP1).
2. Check the number of smaller sub-waves after reaching TP1. If you see 5 waves, close the position completely.
- Recommended risk: 1% or 2% of capital.
Chart:
- The chart shows how to identify entry and exit points in a downtrend, with Wave 3 extending to reach 100% and 161.8% targets of Wave 1.
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General notes:
- This strategy relies on analyzing wave patterns and Fibonacci levels to accurately determine entry and exit points.
- Using the RSI indicator to check for divergence can enhance the trader's confidence in the setup.
- Conservative risk (1-2%) reduces capital exposure to significant losses.
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