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Aug27

A Technical Résumé is Incomplete Without Elliott Wave Theory Appended

by admin on August 27th, 2011
Posted In: Patterns

A Technical Résumé is Incomplete Without Elliott Wave Theory Appended

Technical analysis can be a forex trader’s best friend when it comes to optimizing entry and exit points in the market, but for true devotees of the art, your education is not complete without a healthy dosage of Elliott Wave Theory to bolster your personal level of sophistication when it comes to predicting future price behavior. As when a rock is thrown into a lake, a ripple pattern is obvious, and if the rock is large enough, you can observe a steady progression of declining wave patterns emanating from the original source. In Physics, this phenomenon is known as wave damping. In Elliott Wave Theory, this phenomenon translates into wave counts and Fibonacci retracements.

Currency trading requires the use of technical tools to analyze mountains of data and then present graphical representations of important insights for the trader to assimilate and form judgments in order to form an executable trading strategy. Over time every trader develops his own favorite technical tools, but most of the popular tools are limited in the insights that they provide. Some indicators will announce trends, while oscillators may signal overbought or oversold conditions. Sentiment indicators may also suggest what the trader community thinks of the current market, but none of these will portend the maturity of a trend or a future price target down the road. Elliott Wave Principles are all about when, for how long, and where, the other insights that a trader needs to trade effectively and consistently.

There are five basic ways that Elliott Wave Theory, or its more common name of the Wave Principle, can improve a trader’s performance:

1- Identifies Trends : The Wave Principle can help a trader identify the dominant trend in the market and then plan a high probability trade. Dominant wave trends generally produce a five-wave pattern, while corrective wave trends are typically limited to three waves. Understanding where you are in a major trend allows the trend to be your friend.

2- Identifies Countertrends : Various wave counts following an impulse wave can signal a brief correction in a major trend , thereby allowing the trader to position himself correctly in alignment with the major trend in the market.

3- Determines Maturity of a Trend : Various wave patterns are repetitive in their counts and form on both a small and larger scale. Identifying that you are midway in an upward move is helpful information that allows a winner to keep on running.

4- Provides Price Targets : Elliott took natural law and applied it to market wave action by utilizing the mathematics of the Fibonacci sequence to predict high probability price targets in the future. Waves ebb and flow, and the ratio of impulse to correction typically follow a set of Fibonacci values of 1.618,1.0, 0.618, and 0.382, thereby allowing a trader to set precise profit targets or identify where reversals have a high probability of occurring.

5- Provides Specific Points of Ruin : The Wave principle has a set of rules such that if wave action violates any one of the three, then the trader knows that his operative wave count is incorrect. By restudying the wave pattern at hand, the trader can then anticipate where the trend will break down and then act accordingly.

forex news articles discuss strategies that depend on technical input, whether from pattern recognition, indicator signals, or anticipated fundamental data releases. Elliott Wave Theory expands a trader’s probability for success by augmenting the basic information at hand. The key advantage starts with confirming that you have assessed the correct wave count. Impulse waves always subdivide into five distinct waves, while corrective waves tend to be less energetic, taking longer to form, and overlapping at numerous points. These varying personality types assist with the identification.

Retracements, however, form the basis for many profitable trading strategies because financial markets tend to show an incredible propensity for reversing at certain Fibonacci levels, primarily the big three, 0.382, 0.500, and 0.618. The obvious “bounce back” levels provide high probability trading opportunities, where an adept trader can quickly enter and exit with above average gains. The sequence ordering of the waves also adheres to specific retracements levels, thereby providing more clues regarding future price behavior.

Technical analysis has benefited greatly from the contributions of Ralph Nelson Elliott. Investor psychology does ebb and flow, from optimism to pessimism, to form repetitive patterns that are recognizable and indicative of future pricing movements. Although proponents of the efficient market hypothesis tend to discount any value in technical studies, analysts, traders and investors alike have all profited from the basic principles espoused by the art form. Elliott Wave Theory only expands upon a foundation of pattern recognition and natural law to enable efficiency to a high degree of probability where consistency is the constant objective.

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└ Tags: analysis, chart pattern, Elliot wave
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Aug27

Elliot Waves and 123 Chart Pattern Formation

by admin on August 27th, 2011
Posted In: definitions

Elliot Wave & 123 Pattern

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 you enhance your trading skills.

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└ Tags: 123 pattern, analysis, Elliot wave
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Aug27

Make a report using MT4 Back testing

by admin on August 27th, 2011
Posted In: DayTrading

Before applying for a new system, I used to take my time testing it, take a real trades for a month, then analyze the trades, check the profit – losses level, then if it works fine, I trade it with a real money, otherwise make the necessary system development and try again.

I had a problem with the time, how can I apply my system for the trade happened in the last year, if I got a report for the last year, it’ll help me to take decision faster and go to the next step, the MT4 back testing doesn’t give me the ability to apply trades for the history data, so you can just view trades as you trading online, but you can’t open, modify or close any trades, it means that MT4 doesn’t create any reports in that case, and you have to make it manually.

Lately I found interesting tools that will help you configure your MT4 for making back testing and applying trades with all trading controls like
take profits, stop loss, adding lots,… all the controls you have as you trade online.

All you have to do is download the files, insert it in your MT4 folders and enjoy your effective back testing, take your report and start to analyze it and see how effective is the new system, check the detaild information here

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└ Tags: MT4, Strategy
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Jul02

Gartley Pattern Trading | Harmonic Chart Pattern

by admin on July 2nd, 2011
Posted In: Patterns

Gartley Chart Pattern

Understand the concept of this pattern will make the life easier later, after finishing the basics you’ll not find and difficulty to understand and trade the other extended patterns like Bat Pattern and Butterfly pattern, so let’s start with the basics of the pattern.

Gartley Pattern

Gartley Pattern

First of all find an impulsive wave, impulsive wave is every wave consists of the famous forex five waves, understanding Elliot waves will make it more easier for you to understand this point.

At the end of any wave, there must be a space for price to make a small move in the opposite direction, which called pullback, it usually appears after the fifth wave, this pullback doesn’t move randomly, inside this small move you’ll find it consists of another Elliot wave.

In Gartley Pattern this pullback suppose to stop at 61.8 Fibonacci level, then go to the trend direction but not too far, it’ll stop at 23 level, then resume the pullback again and stop at 78.6 level, if all this condition works fine then this level is your start level to open your position.

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└ Tags: beginners, Gartley Pattern, learn
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Jul02

Harmonic Chart Pattern – Bat Pattern

by admin on July 2nd, 2011
Posted In: Patterns

Bat Chart Pattern

Bat Pattern is a member of Forex chart patterns group, it is considered as extend ot Gartley pattern we talked about before, the different between this pattern and Gartley pattern is that the bull back after the impulisve wave is shorter, it dosen’t reach the 68 fibonacci line, it goes in the main trend direction for a while but till the line 23.

Forex bat pattern

It’s very similar to Gartley pattern, actuly it consider a failed Gartley pattern, but fortunately it draws another effective pattern which is our pattern in this lesson, the bat pattern.

So after teaching the 23 line, it resumes going opposite the trend direction till touch the 88 Fibonacci line, the start to go in the trend
direction again, and here we can open a position according to you money management system you used to following.

Below is a samble from the real trading life, go back to that date and it’s better to make a backtesting to see and understand the stock moves.

This is very nice sample, I got this in March 18, at 11:55 AM using EUR/JPY pair 5 min time frame, check that date in your framework and try to get used of the pattern to catch it easily bu the time.

Live Bat Profit Chart

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└ Tags: basics, Bat, Gartley Pattern
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  • Elliot Waves and 123 Chart Pattern Formation
  • Make a report using MT4 Back testing
  • Gartley Pattern Trading | Harmonic Chart Pattern
  • Harmonic Chart Pattern – Bat Pattern

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