Elliott Wave Analysis using Relative Strength Index, Histogram
Greeting,
Today I'm going to teach you a technique for analyzing Elliott Waves. After this, you will get a sound understanding of how to analyze Elliott Waves. This tutorial is for you that has an established understanding on the Elliott Wave Theory. If not, this guide could still be useful, but not optimal.
To start, you'll have to set up the Relative Strength Index(RSI) and the MACD indicator. This guide analyzing a hypothetical bull trend. It can be used the opposite way, just flip everything from a bull perspective to a bear perspective.
First, we want to identify wave-3, as this is the one that stands out. Open a chart, browse through different pairs until you find one where the RSI is clearly above 70 value. If you're uncertain, watch my chart as this is the perfect example.
Second, when wave-3 is identified, we want to identify wave-1. Again, we do this by analyzing the RSI for clues. Wave-1 will be the high that hits the 70 level and then reverses BEFORE wave-3. If it doesn't hit 100%, don't worry. As long as it gets close and reverses at or around this level before wave-3, we’re good.
Third, we now have identified wave-1 and wave-3. Our next stage is wave-5. We do this the same way as we did with wave-1. The fifth wave will be the high that hits the 70 level AFTER wave-3. It is very important that wave-1 happens before wave-3 and that wave-5 happens after wave-3. As with wave-1, this wave does not need to hit the 70 level 100%, as long as it's close. Wave-5 does not need to reverse as this would ruin our trade, because it would be to late for us to enter.
Fourth, with all the impulse waves identified, we need to identify wave-2 and wave-4. Fortunately, this is the easy part. These waves will be the lows between the impulse waves(1-3-5). Wave-2 will be the low between wave-1 and wave-3, and wave-4 will be the low between wave-3 and wave-5.
Now to the fun stuff.
Draw an arrow from the top of wave-3 and wave-5. Usually, the fifth wave will be higher than the third wave, so this arrow should be pointing upwards. If we now draw an arrow from the same point on the RSI (The highs we discussed earlier), this should be point downwards.
If the pair you're analyzing comply with these criteria, you can continue.
We now want to do the same for wave-2 and wave-4, but this time we compare the lows and not the highs (as wave-2 and wave-4 is corrective). Draw an arrow from the end of wave-2 (the lowest point) to the low of wave-4(the lowest point).
This must be pointing upwards, if not. Find another pair and start over.
Draw an an arrow from the associated points on the histogram. If you're uncertain about where to draw the arrow from, draw a vertical line from the bottom of wave-2 and the bottom of wave-4.
Your chart should look like mine now. We should have an arrow drawn from the top of wave-3 to the top of wave-5 on the price chart, an arrow from the top of wave-3 to the top of wave-5 on the RSI, an arrow drawn from the bottom of wave-2 to the bottom of wave-4, and lastly an arrow drawn from the bottom of wave-2 to the bottom of wave-4 on the histogram.
If your chart aligns with these criteria, you’ve successfully identified a beautiful high probability set up.
Now for the actual trade. We want to enter the trade at the best price possible. This entry is often between the 100% - 124% extension of wave-4. We can get clear levels by drawing a Fibonacci Retracement tool from the top of wave-3 to the bottom of wave-4, and then insert our chosen values (100%, 113%, 124%).
If the price hits these levels, and fulfill all the criteria mentioned above, we can confidently short the market. If you don't believe me, do this technique on different pairs and timeframes, and watch the magic happen. This technique does not guarantee a full-blown change in trend but does indicate that the market is wearing out and probably will reverse in the time to come.
My preferred Take-Profit is 23.6%, 38.2%, and 50% retracement of the whole 1-5 wave.
Stop-Loss should be between 141%-161.8% of the wave-3 to wave-4 Fibonacci Retracement tool.
I hope you enjoyed this guide. I know it's a tough read. If I get good reviews, I'll release more guides like this In the future.
Today I'm going to teach you a technique for analyzing Elliott Waves. After this, you will get a sound understanding of how to analyze Elliott Waves. This tutorial is for you that has an established understanding on the Elliott Wave Theory. If not, this guide could still be useful, but not optimal.
To start, you'll have to set up the Relative Strength Index(RSI) and the MACD indicator. This guide analyzing a hypothetical bull trend. It can be used the opposite way, just flip everything from a bull perspective to a bear perspective.
First, we want to identify wave-3, as this is the one that stands out. Open a chart, browse through different pairs until you find one where the RSI is clearly above 70 value. If you're uncertain, watch my chart as this is the perfect example.
Second, when wave-3 is identified, we want to identify wave-1. Again, we do this by analyzing the RSI for clues. Wave-1 will be the high that hits the 70 level and then reverses BEFORE wave-3. If it doesn't hit 100%, don't worry. As long as it gets close and reverses at or around this level before wave-3, we’re good.
Third, we now have identified wave-1 and wave-3. Our next stage is wave-5. We do this the same way as we did with wave-1. The fifth wave will be the high that hits the 70 level AFTER wave-3. It is very important that wave-1 happens before wave-3 and that wave-5 happens after wave-3. As with wave-1, this wave does not need to hit the 70 level 100%, as long as it's close. Wave-5 does not need to reverse as this would ruin our trade, because it would be to late for us to enter.
Fourth, with all the impulse waves identified, we need to identify wave-2 and wave-4. Fortunately, this is the easy part. These waves will be the lows between the impulse waves(1-3-5). Wave-2 will be the low between wave-1 and wave-3, and wave-4 will be the low between wave-3 and wave-5.
Now to the fun stuff.
Draw an arrow from the top of wave-3 and wave-5. Usually, the fifth wave will be higher than the third wave, so this arrow should be pointing upwards. If we now draw an arrow from the same point on the RSI (The highs we discussed earlier), this should be point downwards.
If the pair you're analyzing comply with these criteria, you can continue.
We now want to do the same for wave-2 and wave-4, but this time we compare the lows and not the highs (as wave-2 and wave-4 is corrective). Draw an arrow from the end of wave-2 (the lowest point) to the low of wave-4(the lowest point).
This must be pointing upwards, if not. Find another pair and start over.
Draw an an arrow from the associated points on the histogram. If you're uncertain about where to draw the arrow from, draw a vertical line from the bottom of wave-2 and the bottom of wave-4.
Your chart should look like mine now. We should have an arrow drawn from the top of wave-3 to the top of wave-5 on the price chart, an arrow from the top of wave-3 to the top of wave-5 on the RSI, an arrow drawn from the bottom of wave-2 to the bottom of wave-4, and lastly an arrow drawn from the bottom of wave-2 to the bottom of wave-4 on the histogram.
If your chart aligns with these criteria, you’ve successfully identified a beautiful high probability set up.
Now for the actual trade. We want to enter the trade at the best price possible. This entry is often between the 100% - 124% extension of wave-4. We can get clear levels by drawing a Fibonacci Retracement tool from the top of wave-3 to the bottom of wave-4, and then insert our chosen values (100%, 113%, 124%).
If the price hits these levels, and fulfill all the criteria mentioned above, we can confidently short the market. If you don't believe me, do this technique on different pairs and timeframes, and watch the magic happen. This technique does not guarantee a full-blown change in trend but does indicate that the market is wearing out and probably will reverse in the time to come.
My preferred Take-Profit is 23.6%, 38.2%, and 50% retracement of the whole 1-5 wave.
Stop-Loss should be between 141%-161.8% of the wave-3 to wave-4 Fibonacci Retracement tool.
I hope you enjoyed this guide. I know it's a tough read. If I get good reviews, I'll release more guides like this In the future.
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