Trading Strategy Guides
The Best Trading Strategy Guides Based on Elliott Wave Theory
1. Trading Strategy of Right Side
A trading strategy is a systematic methodology used for buying and selling in the markets and it's based on predefined rules and criteria used when making trading decisions. Here we've divided the trading strategies in the following ways -
- Trading the Right Side
- Strategy implementation
1.1 Trading the Right Side
Knowing the right side in the time frames that we trade can help us to do fewer mistakes. Trading the right side is always trading in the right direction probability, Identifying and trading the Right Side.
Identifying and trading the Right Side -
- Swing Counts and Sequences
- Fibonacci - Extensions and Retracement
- Cycles
- Relative Strength Index (RSI)
- Correlation
1.1.1 Swing Counts and Sequences
An Impulse Sequence
- Waves that move in the sequence of 5-9-13-17-21-25 and so on swing, in a s equence with increments of 4
- The sequence is incomplete until it reaches the numbers above 5-9-13-17-21-25 - ...
A Corrective Sequence
- Waves that move in the Sequence of 3-7-11 and so on swings. Can be seen in both trending and correcting markets.
- Zigzag, ( ABC) - flat, ABC) -triangles,(ABCDE)- double threes,( WXY) -triple threes (WXYZ)
- Sequence can be complete 3-7-11-15-19-23 - ... in a Sequence with increments of 4
- The sequence is incomplete until it reaches the numbers above 3-7-11-15- ...
1.1.2 Fibonacci - Extensions and Retracement
Our buying or selling area is located at the extremes (which is an area where buyers and sellers agree that the old sequence must end and the new sequence must begin). The extreme area trade is called hedging in which the buyers and sellers either after five waves make three or after three waves make three. Typically the hedging happens at the 100% or 1.236 Extension . of three, seven, and eleven swings. Zigzag, ( ABC) )- double threes,( WXY) -triple threes (WXYZ)
We must on the other hand confirm this hedging area with the following Fibonacci retracements:
- 23.6% - 38.2% is used for wave 4
- 50% - 61.8% is used for wave 2
- 76.4 – 85.4% (deep retracement) can be wave 2, a FLAT
1.1.3 Cycles
- When a cycle is running, the trend within that cycle remains the same. A clear cycle is either a 5 waves cycle or a corrective cycle needed for a 3-7-11-15-19… swings and so on.
- Impulse bullish Structure a HH HL,HH HL, HH in 1-2-3-4-5. Can be 1 bullish cycle in the long term, 5 cycle in the medium term, and 17 cycles in the short term
- Corrective bullish cycle a HH HL,HH HL, HH HL, HH in WXY ( for example) ( Can be 1 bullish cycle in the long term, 3 cycles in the medium term, 7 cycles in the short term
- A bullish cycle is a sequence of higher highs and higher lows
- A bearish cycle is a sequence of lower highs and lower lows
- A cycle generally ends in 3 swings at 100%-123.6%.
- After a cycle ends, expect a correction in 3,7 or 11 swings
- The market runs in cycles and the cycles can be seen within the RSI and also the trend line crossing
Distinguish between Cycle and Sequence
Cycles are part of the Sequence. Cycles are an advance and a decline, which create the Sequences. The motive Sequence is 5-9-13-17~21... And the corrective Sequence is 3-7-11-15.
Distinguish between Structure and Sequence
Structures are like impulse and corrective sequences. When we talk about Structure in general, we mean that the movement is already completed or should be completed very soon ( Impulse Waves 5, 9 or 13, or 17. Main Diagonal, Final Diagonal Impulse Extension). (Corrective, ABC, WXY, XXYZ, Triangles, Planes). The Sequence ends in a Structure and when it is not complete it helps us to predict the missing swings/waves with the help of Fibonacci and RSI, Trendline. As we only buy or sell when the sequence is incomplete, to facilitate the presentation of our Product (Current Structure) we use the Bullish, Bearish, and Sideways Structure to be more comprehensive, and thus be able to suggest an aggressive technical target.
1.1.4 Relative Strength Index (RSI)
As we have already seen in Tools- RSI, when the trend line is broken it is a leading indicator that the old Cycle is over and a new Cycle has begun. A Cycle is trading within an established trend channel in price and RSI.
1.1.5 Correlation
We consider it very important that the buy and sell must correlate with the different market groups and instruments and locate an incomplete or extreme Sequence. When any Sequence is incomplete, it is bullish to locate within the group which one is more lagging into the Sequence and trade that instrument. We must not forget that market correlation is fundamental and needs to be used in the right way.
The most important groups -
- USDX – EURUSD, GBPUSD, USDCAD, USDNOK, USDJPY, USDCHF, USDSEK, USDPLN.
- Commodities currencies – AUDUSD, NZDUSD, USDCAD
- Indexes – SPX, DAX, FTSE, S&P/ES, DJIA, Nasdaq, RUSSEL, AAPL, FTSE, DAX, IBEX, Eurostoxx50, NIKKEI, ASX, Hangseng, TASI, NIFTY
- Yen group – USDJPY, GPBJPY, EURJPY, AUDJPD, CADJPY, NZDJPY, CHFJPY, TNX
- Commodities – Gold, Silver, Copper, Oil, NATGAS, Soybean, Corn, Sugar, Wheat, Coffee
The market, as we have already seen, does not always work with the same swings in the different groups, so it is important to understand the Correlation. We must verify the Cycle and Sequence in crosses to help determine which pair to trade within the group.
1.2 Strategy Implementation / Trading Motive and Corrective Sequence
The objective is to use all the Tools and Market correlation that we introduced in the Resources to get to the most important part of the strategy implementation. We must not forget that market correlation is also very important and needs to be used in the right way. We only trade when the sequence is incomplete. If a sequence in three swings does not reach 100% Fibonacci extension it is an incomplete sequence and therefore it is Bullish.
When it reaches, it becomes a complete sequence and we should not trade this instrument at the moment. On the other hand, when 1.618% Fibonacci is reached, in three swings we have a new bullish Sequence and thus it is an incomplete Sequence.
There are two different Sequence on the market
- Impulse Sequence: 5 - 9 - 13 – 17 - 21
- Corrective Sequence : 3 - 7 - 11 – 15 – 19
The trader needs to understand the two different Sequence of the market in order to buy or sell at the right time. As the market has two different sequence (impulse sequence and corrective sequence) sequence and timeframes make the trader find the trend, which is the most important thing to avoid making basic mistakes.
When we found a break in the sequence a corrective move can be a change of trend or the end of the internal Cycle. A downtrend will be a sequence of lower lows and lowers highs, the trend should be down until the sequence happens. An uptrend is a sequence of higher highs and higher lows
We must bear in mind that we should only Trade in direction of the trend.
When all instruments in a group are calling for a pullback and extension higher or lower. Buy/Sell the ones which are already showing an incomplete Sequence to the upside/downside.
When we locate the extreme area. We will always trade an incomplete sequence.
Understanding these two and understanding that the market has different sequence and time frames makes the trader locate the trend which in the end is the only way to be successful.
Typically the hedging happens at 100% or 1.236 Extension of three, seven, or eleven swings. Zigzag,( ABC) - double threes, ( WXY) -triple threes (WXYZ)
We must on the other hand confirm this hedging area with the following Fibonacci retracements:
- 23.6% - 38.2% is used for wave 4
- 50% - 61.8% is used for wave 2
- 76.4 – 85.4% (deep retracement) can be wave 2, a FLAT
Always buy/sell (100% extension ) in 3-7-11 swings and we must on the other hand confirm this hedging area with the following Fibonacci retracements:
- 23.6% - 38.2% is used for wave 4
- 50% - 61.8% is used for wave 2
- 76.4 – 85.4% (deep retracement) can be wave 2, a FLAT
Note: We do not like to trade Triangles, Flats, and even Triple Threes
It is recommended to always enter with the full position because when losing, you lose with the full position. Trading has to be done in a professional manner. Trading is about discipline and patience. A trader needs to act like a hunter and wait for the market to come to him, and always have a plan and execute that plan.
We must always trade with the trend.
Trade counter trend only when there are 5 swings into the correction or when the first leg is a 5-wave move.
1.2.1 Stop Loss and Partial Profit Taken
STOP below or above the 1.618 % extension of 3-7-11 swings or also typically below or above 76.6 % retracement. Look for a setup to a higher degree and execute to a lesser degree.
Example: Look to Day (D) and execute in (four hours) H4
Take Half the Profit at 50% of A-B or W-X and take the rest of the profit at 100% Extension. After we also change the stop loss below or above the entry price ( break-even). If we trade on a higher timeframe like the daily or weekly chart, we should move the stop loss to break even just when the previous Structure high/low has been broken.
This technique has a very good success rate because the entry takes place in the area where sellers and buyers agree on the area. The important thing, as we have seen, is to always get locate this extreme area.
1.2.2 Very Important Trading Warning
You must always have a Trading System, so you can trade. If you don't have a System, you run a very high risk of losing your entire account.
- You need to know exactly the conditions under which you can start trading
- You need to know exactly where you are going to place your stop loss
- You need to know which position size (risk/reward) you should place to manage your account.
Some elementary mistakes must be avoided -
- Forget to fix position size and risk/reward
- Pursuing the market in the middle of the sequence
- Overleveraging the position
- Trading against the higher degree sequence
- Trading on bounces or pullbacks against the sequence