4.52 How to Trade Forex with Elliott Waves – Some Examples

Examples of Elliott wave trading.

Now you know all the important secrets of Elliott waves, right? But then what? 


Understanding the meaning of cold and being able to use the concept of coldness to save you from the severe winters or using that concept to keep your food fresh make all the difference, right?


So here we go; let's see how to use Elliott waves to surf the larger waves of the Forex market. We will take a couple of practical examples to see how we can make the best use of Elliott waves to trade Forex.


As true with any technical tool, you can make your trades with Elliott waves in following ways:


  1. Trades based solely on Elliott wave theory.

  3. Combine Elliott wave concept with other tools.


But then, the later always makes more sense


So, before we go ahead and talk about some trading examples, let's see what all you need to keep your eyes on, while trading with the wave theory. In fact it is not just Elliott waves but it's always better to keep each of the following into consideration while trading:


  • Overall trend situation on longer term basis.


  • Psychological price levels as these levels may cause trend reversal or some significant price corrections.


  • Any common chart patterns or candlestick patterns emerging on the chart.


  • Any noticeable signals or indications by any technical indicators, which you commonly use.


Let’s walk through a couple of examples of trading with Elliott waves.


Here’s the first Forex chart of EUR/GBP:


Trading with Elliott wave - Chart 1 


  • The very first thing we noted on this daily chart was that the price fell heavily from close to 0.8510 to the ranges of 0.7700 before rising up. Let's go a little back to the time when the price came down close to 0.7700 and started moving up. The point to be noted here is that 0.7500 may prove to be a strong psychological support and hence a reversal or a strong upward correction can be expected any time. And that time might have already come.


  • The upward jump found a short-lived resistance at the previous resistance level, indicated by arrow 2, but the resistance did not sustain.


  • The second resistance came slightly below the strong support zone (arrows 1 and 3) of the recent past. As we have seen that previous strong support zones tend to become resistances, and vice versa, and hence this resistance was a natural one. A break of that resistance was the first sign to indicate the possibility of a substantial upward correction.


  • However, there is one more critical resistance in place, which is indicated by arrow #4. We will not go in for a long position till that resistance is in place.


Please note that till now Elliott waves have not come into the picture. However, as the clock ticked and the price climbed further up to hit that previous resistance, we got a 5-wave pattern of an impulse wave in place.


This is the time to check if the waves have been finding supports near the Fibonacci retracement levels.  Please note that this is not a mandatory condition to identify Elliott waves but still helps.


Chart 2 of the example of Elliott wave trading. 


As the above chart shows, both wave 2 and 4 found supports at key Fibonacci levels and hence met one of the guidelines of Elliott wave formation.


Now is the time to wait for the corrective wave formation. There is always an opportunity to go for a short position when the decline starts from the 5th wave of the impulse pattern. However, we do not yet know whether this pattern is really an Elliott wave pattern or not. 


So we wait and watch. And yes, a nearly flat corrective wave did form. But the more interesting point was the simultaneous formation of an inverted head and shoulders chart pattern. Two to Tango; isn’t this combination expected to bring some real major moves? Here we go:


Chart showing big gains after pacing the trade with Elliott wave breakout. 


As seen clearly from the above Forex chart, the inverted head and shoulders pattern came to the aid of the Elliott wave and the combination was a strong signal to jump into the market to go for a long position. The entry should be with a break of the neckline of the head and shoulder pattern. The stop-loss order could have been just below the recent support, as shown in the chart.


Let’s check another unique example. We call it unique because here one set of Elliott Waves followed another one immediately. And the result; should be mind boggling, right? This time the currency pair is GBP/USD. Let’s check this out!


GBP/USD chart with Elliot wave formation after a bearish trend.


The above chart is another example of a strong bearish trend. The psychological level of 1.5000 was broken but a slight break during such strong momentums can always take place. What is important is to see whether such breaks sustain or not. As evident, the break did not sustain and the price rose up immediately. The climbing price formed a nice impulse wave. This impulse wave was followed by an expanded flat corrective wave to form an Elliott wave pattern.


A significant point to note here is that the corrective wave ended with a support in the same support zone where the Elliott wave had begun. This was a sure-shot calling to jump into the market to buy. And that's precisely what we d id, with a stop-loss order which was a few pip below the recent bottom as indicated in the next chart. The entry for the long position was made with a break of the red-line. This line represented one of the previous support zones, which could have turned into resistance.


Let’s have a look on the chart below to see the results:


Breakout trading results from Elliot wave. 


The above chart shows some seriously handsome gains on that long position. But wait! Did you notice how another Elliott wave was formed as soon as the first was ended? Wasn’t that cool? Wasn’t it a call for staying long or even for buying more? Well, that’s what we did. And look what happened next:

Trade based on the subsequent Elliott Wave.


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