Fibonacci numbers play an huge role in Elliott Wave trading. Elliott didn’t discover the Fibonacci relationships himself, but this was brought to author’s attention by Charles J. Collins who had published Elliott’s “The Wave Principle” how to apply fibonacci in forex trading helped introduce Elliott’s theory to Wall Street.
The first impulsive wave, which Elliott traders don’t use for trading, but rather for analysis of the wave 2. Wave 2 should not retrace below the beginning of wave 1. At times it can go below the 61. 2 retracement is quite aggressive since many traders don’t acknowledge the change in the main trend yet. The minimum retracement to expect is 38. Wave 3 is never be the shortest among waves 1, 3 and 5. At the very least it should be equal to wave 1 in length.
Wave 3 as the longest wave normally tend to be 161. Wave 4 is one of the shallowest waves: at this stage many traders take profits, while there are few others who are willing to trade counter-trend. It often retraces slowly for an extended period of time and reach normally only 38. Wave 5 should move at least 61.
If wave 3 is greater than 161. If wave 3 is less than 161. As you can see, as soon as wave 1 is completed we can already make a projection of the first possible target for wave 5. To do so we multiply the height of wave 1 by 161.
Later when wave 3 is completed we can add yet another projection of the second possible price target for wave 5. To do so we have to examine wave 3: if wave 3 is greater than 161. 1 in length, wave 5 will often be extended with targets of at least 61. In the end, the closer are the results for wave 5 targets calculated by different methods the higher will be the chances to see a trend reversal in between those levels.
Will you be providing a free harmonic pattern indicator here? Step 1 A downtrend ends with Wave 5. Besides the end of the wave 5 in a downtrend, we also want to see the first indication of a trend reversal – an establishment of a new Higher High. Step 2 Once a new Higher high is found, its the first opportunity to plan an early entry with a new trend. These levels will give an Entry zone area. Step 3 Once a Buy order is open, place an initial Stop order below the beginning of the Wave 1. If price goes past Fibonacci levels resulting in a wrong trade, accept the Loss and at that point place a Sell order with a profit target set cover up the previous loss.
1 at the first resistance level, which is the top of Wave 1. 2 of the position at that point. Why to take profits this early? 1 is reached, move the Stop order to break even. Those resistance levels if passed successfully, present an immediate opportunity to add 1 more Buy order to an existing trade. 3 is the strongest wave, so that’s a good opportunity to make more profits. At this point we want to close all remaining trades.