Elliott Wave Magic Illustrated with Wave Charts

 

“Can anyone parlay a $10,000 capital into $1,000,000 in a year? In five years? If so, how do you do it and what are the risks involved?” – Robert Balan

 I have been practicing Elliott Wave Analysis for over 25 years, and have made some astounding calls that came true. But I cannot honestly say that I was able to turn a mere $10,000 into a million dollars. Yet, I can confidently say that there are very few technical approaches to dealing with the uncertainties of the market place as efficiently as does the Elliot Wave Principle. I am not going to give you the rules and guidelines governing the practice of Elliot Wave Theory. There are ample resources in the web that you can access at the click of your mouse. What I will do, instead, is to give you one example now, and show you how the magic of Elliot Wave Principle works in the Forex market.

You see here two charts of Sterling Pound (GBP/USD). The first is a monthly chart going back to the early 1980s. The second is a daily chart going to Oct 2007. The magic of Wave Principle is that it works equally well in the monthly chart as it does in the 5-minute chart! Having said that, I must also add that you should not try to day-trade using the monthly chart! For example, the monthly chart suggests that our long-term target for the Pound is around 1.3300 (We have already reached 1.3498) but the daily chart points to a significant recovery, perhaps reaching as high at 1.6170 before down. Of course, there are several risk levels on the way, for example, it might run into considerable selling pressure near 1.4900.

This monthly chart of GBp/USD goes back to 1992

This monthly chart of GBp/USD goes back to 1992

But let us first look at the monthly chart and see how the waves unfolded. Let us suppose that we are now in the early 1990s and have already seen the first big move from 1.0520 to 2.0045 (Point A). When the second attempt failed to sustain above that level, we should have anticipated a swift move down. Remember that the third step of any progression is always a powerful move. We could have easily calculated that a 61.8% retracement of the Wave “A” would lie at 1.4158. The move actually finished at 1.4063. Next consider the “c” wave that went from 1.7366 to 1.3677. Believe it or not, but that move was just 7 pips short of the 61.8% measure of the “a” wave. But the Elliott Wave magic doesn’t stop there. Wave “B” that went from 1.3677 to 2.1161 was only 2 pips short of 78.6% of wave “A”. The Elliot Wave Principle asks us to always be on the look out for Fibonacci relationships between alternating waves.

'Daily' chart of Sterling presents a close-up view of recent action

‘Daily’ chart of Sterling presents a close-up view of recent action

Now let us turn to the daily chart. This is a lot more interesting. As you can see from the comments on the chart, one could have placed a low-risk “buy” trade near 1.7450 as it marked a 161.8% projection of the first wave down. One of the problems that many beginning-analysts face is how to pick a level and call it the end of a certain wave? For example, how did I label the 1.7450 level as a mini wave 3? With hind sight it all looks so good, but how on earth can one figure out that we will not break directly down? (See for example how the 261.8% level at 1.5628 did not hold). Welcome to the real world of Elliott Waves! The key to lasting success in the business of trading is to be honest to your paradigm. Follow your rules (whatever they may be) to the letter. The biggest sin that a trader can commit (second only to not having a stop loss) is to keep changing his rules.

Take a look at the chart again. When you get a fast sell off, you should calculate various projections and keep them by your desk. I would have known that 1.7450 was a likely (but not certain) support. I would not buy there the first time. Typically in a fast moving market, we will always get a retest of the lows. If the market stabilized near a Fibonacci projection at the first try, I would place a small ‘buy’ order near the prior low with a stop just a few pips below that low. As you can see, we got a second test of 1.7450 two or three days after the first try. Since the buying interest was strong at that level, the trade paid off handsomely. (Another tip: Depend on daily charts more than hourly charts to figure out supports and resistances).

Let us look to the future now. Why do I think we could go higher to around 1.6170? First of all you should understand that in order to make money, it is not so important to know the medium term targets as it is to know the general direction! So what if we don’t get as far as 1.6170. Most traders would be just as happy to catch a move to 1.4900.! Anyway, back to the question. We saw that Wave (2) at 2.097 was a ‘simple’ correction. This means there is a high probability for wave (4) to be a complex one. We have already seen that the “B” wave (as labeled by me) is an irregular one, with the low coming well below the end of the Wave (3). If you accept this count as valid (and remain truthful to that count until proved wrong) then you should look for the Wave “C” within the Wave (4) to go well above the top of the wave “A.” Besides, the second test of the low seen AFTER posting the “B” wave bottom was unable to break the prior low. And finally, we not only saw a strong move higher, but it has managed to break above a declining (green colored) downtrend line. These are just some of the reasons why I am looking for Sterling to continue moving higher.

If one only worries about being ‘correct’ in making market calls, one will never be a good trader.

It is vitally important to have an open mind about these things. Consider this. I have a market reputation and will look silly if the Pound stops climbing and goes down directly. Should I allow that to bother me? If one only worries about being ‘correct’ in making market calls, one will never be a good trader. A trader has to study his charts and make the most educated prediction about what will happen next. He should then execute his plan of action without wavering one bit. This includes having an affordable stop-loss, as well as plans to take profits along the way. There is no other way to riches. To use the Elliott Wave Magic one has to combine wave analysis with money management.

(This article was originally published in FX Trader Magazine in their April 2009 issue.

  73 Responses to “Elliott Wave Magic Illustrated with Wave Charts”

  1. Dear Mr. Ramki,
    I am interested to learn how to recognise pattern and apply it thru’ Elliott Wave Principles from you…Regards
    Vatsal Patel

  2. Hi sir,
    I’m regular reader of u r valuable Studies & comments,
    i’m interested in elliott wave study, can u guide me to learn the elliott wave or is there any institute for elliot wave in india or in abroad. please replay, thank u

  3. sir which software you are using?plz suggest me

  4. hi sir, thank u very much for your guidelines , actually i want to know how can i decide the rate of any stock in which wave if the current rate of stock 281 and elliott wave tell me buy at 276 with target of 280 then how can i decide this rate of stock in which wave .

  5. Sir can you provide desktop elliotwave calculator

  6. Hello Mr. Ramki
    Have been a reader of ur site for sometime now. Just got to know about elliott by reading ur and a couple of other sites.

    I used to be a fundamentalist ( still novice ) but after losing in the freefall of 2008 i am more inclined towars TA especially EWA, since it tells u about future ( going by ur predictions and acknowledging with acceptance the truth, since confirmed by markets )

    can u suggest me a book to understand EW for starter like me. And when are u coming out with ur’s?

    regards

    lucky gulati

  7. Hi Mr.Ramki,

    Could you please list out all the important topics to be studied in Elliott Wave as per the correct order bcoz so many webpages seems to be confusing.

    Thanks in advance.

    Regards,
    Dinesh

    • HI Dinesh

      Thanks for your comment. I am not trying to sell you my book, but the order of the topics in it is a good way to go about learning it.
      Best wishes

  8. Hello Mr. Ramki
    Is there any print edition of your lovely book and are there any new ones coming.
    Best Regards
    Satiishh

    • Hi Satiishh, Thanks for your post. The book in its electronic format allows the various cross-references which will be lost in a printed version. So no print edition for now!! More books? I’d like to see this one become a best seller first! You can help, (a) by telling your criends (b) posting a review on Amazon! Thanks to you and other silent readers

  9. Sir,
    I want to know about Elliot wave and how it apply to any market..pls suggest me some books.that are available at kolkata.

    • Hello Suman,
      There are many good books available in the market. Some are also avaialble online. You might consider reading my own book, the links are on the blog to the right side.

  10. Hello Sir..wish you very happy new year..i am an Analyst and your real admirer ..i would like to know whats is the accuracy rate of elliott wave..thx

  11. Just bought your book and have read half in one day Ramki and am enjoying it immensely. I met a man here in Taiwan who got out before the 2008 crash b/c of EW, and got interested. I hope to use it to time the gold and silver bull so I can turn paper into physical.
    cheers

  12. hi sir, i do chart pattern study but on daily chart basis, can you tell me if I use a 5 day chart what is the time frame that I can use for making decisions for buy and sell and whether to use candle bar or line…. thanks

    • Hi Anil, if your time frame is five days then you should use the hourly charts, and perhaps 30 minutes as well. Basically you will be day trading! Refer to my book for more details.

  13. Dear Ramki,
    I have just started studying the EWA, I am not able to understand from where to start the counting of the waves and where to end, How much % each wave should be with respect to other wave, on what bases that is decided, please guide me on this.

    regds
    sachin

    • Hi Sachin, a good starting place for you to learn Elliott Wave Analysis is by reading a book, and many people seem to think that my own book is written in an easy to understand style. Check it out. See the image on the right side of the blog. Good luck

  14. Respected Sri Ramkji

    Just bought your book on Amazon. Looks like my weekend assignment is all set. Thanks for this great web site and all the examples. This is a yomen service of spreading the wealth of knowledge. Hopefully I will be able to pick up a lot. Hope you are enjoying your vacation.

    Shiva

  15. Dear sir,
    I dont much about trade. But one thing i want to know is that. I have some US dollars which i got for INR 53. But know i want to exchange it to INR as i worried that rates gone down to INR 49. please suggest me that i have wait or to Exchange it.

  16. Hello Sir,

    whenever any question arises to me regarding elliot, it reminds me of you.

    sir i suspect there maybe a triangle formation on nifty where a,b & c seems complete . if this is true than we are forming it as a consolidation on wave 4 & 5th wave up shall eventually come.

    your valued opinion sir.

    Cheers.

    Amit

    your

  17. Dear Sir,
    I just bought your book and have given the first reading. I was looking for a good simple book on Elliot wave. I am sure i have found one. Onr thing i would like you to clarify is ‘reflex point” . Please…

    Amitabh

  18. Sir, I want to know how does one identify ‘reflex point’ on a chart?

  19. Hi Sir,
    I want to learn Elloitte Wave Principle and how it use for Nifty. Please advise me best book on this and also tell me the name of the book written by you on Elloitte Wave.

  20. Good job Mr Ranki, I am beginner on Elliott wave. now i have some of the analysis that i have done, how can i upload it to your site or to send it to you for check it out. Also just want know if there is any public upload for others to see.

    • Hello Olajide, I suggest that u use the forum for this. I haven’t been able to attend to it regularly, but it should be up soon.

  21. I have seen evidence of an individual who started studying Elliott Wave Principle seven years ago, and started trading with capital of $100,000 dollars. He worked very hard, sticking rigidly to the Elliott Wave principles ( confident in Elliott Wave and not interested in forex industry or other distractions) and risking 2% of his capital per trade. He trades eight currency pairs down to 15 min charts.

    Today his capital stands at $32,000,000 and his current yearly (2012) profit stands at just over $16,000,000. His success rate averages (that’s averages!) out at between 80-85%. Mind you he studies the charts for up to 14 hours a day! Sometimes 16 hours.

    Bear in mind he has sustained some losses, but never more than 2% of his capital.

    I tell you this only to show it is possible.

    Just remember, what one man had done another can do also.

    Cheers,

    Jo

    • Hedllo Jo, Thank you for that interesting story. I have been witing on ELliott Waves for nearly 30 years and haven’t been able to achieve such a spectacular success. Blessed is the person who can apply what he has learned diligently to the markets.

      • Hola José, no hay ningún cambio en el panorama general, pero el momento de vender no es sólo la resistencia al yet.Initial 0,8080 y luego 0,8170. Veamos lo que sucede en estos niveles y luego llegar a una estrategia. (ENglish:Hello Jose, there is no change in the big picture, but the time to sell is not just yet.Initial resistance at .8080 and then 0.8170. Let us see what happens at these levels and then come up with a strategy.)

  22. Hola Ramki, ahora que el NZDUSD rompió este viernes el máximo anterior de 0.8, ¿Que cambio ha ocurrido con el análisis de estas ondas?, ¿Afectará al desarrollo esperado anteriormente?
    Saludos. (English : Hi Ramki, now that the NZDUSD on Friday broke the previous high of 0.8, what change has occurred with the analysis of these waves?, Will it affect the development previously expected? Greetings.)

  23. mr. Ramki Can I get a free copy of your book if interested I would buy the original one. hum hindustani aisa hi karte hai……………. But hats off for your success in trading . And finally an indian applying elliott wave theory to financial market After me. HeHeHe

  24. plz provide me the elliott wave calculator in excel format. it will be very helpful

  25. Hi Mr R

    When we say that wave 2 cannot proceed below wave 1 and we are using candlestick graphing, does that mean that even the extreme lows (fine shadow line) must not exceed the origin of wave 1 or is it only the “real body” of the candlestick that we should observe?

  26. Hi Mr R

    What about a wave “b” of wave two that spikes ahead of wave 1 (irregular correction) and now overlaps with wave 4? That wont be a violation, because it is not part of wave 1 overlap with wave 4. Is that correct thinking?

  27. SIR, I AM TRADE BUT DONT HAVE MUCH TIME TO LEARN,, PLS SUGGEST ME ONE GOOD CALL PROVIDER WHO PROVIDE CALL ON ELLIOTT WAVE THIORY, PLS SIR

    • HI Dipak, depending blindly on others is not a good idea. Have you looked at wavetimes.net? I am sure you will find other providers who may be a lot cheaper. But my advice to you is to learn the theory and practice yourself. Good luck

      • Sir, thanks for advice, i also want yo learn, but first i have problem in english and second i m govt contractor( small business), so full day i m on site work, that’s y i find good advisor, in future when i get this book in gujarati , i buy and learn, thanks again for reply

  28. Dear Ramki,
    I have gone through first few pages of your book “Five waves to Financial Freedom”. As I progress through the book I will prefer to write pros and cons about your book, please don’t mind it, I always prefer to give honest feedback.

    As you have mentioned in your book that counting for wave 1 should be started from the most significant point, can you please tell me how to make sure that the particular bottom is the most significant bottom. I have come across charts where its difficult to decide what should be the significant point.

    regds
    sachin

    • Hi Sachin,
      Thanks for writing. Obviously I won’t be able to answer ALL your questions on the blog. But this one is a very good question. A significant low is anything that stands prominently below recent lows. Obviously, if you go back some more in time, you will probably find still lower lows, but for practical trading it is enough to start from any prominent low to start your count. Eventually you will be proved wrong, but by then you would have made money or controlled your risk.

  29. Sir, how do I buy your book in India? I searched most notable retailers, but none of them have it. Please guide. thanks.

    Rahul

  30. Any new thought for TAIEX movements..still see 6,100? Now 8,169. Whats your outlook for peak and bottom pls? Tks.

  31. Hello Ramki
    Thank you for taking the time writing 5 waves to Financial Freedom. I am enjoying reading thru my Kindle. Please when you have, a moment can you please email me Fig 5a and Fig6b as these two figure did not download into my kindle.

    Thank you

  32. GM Ramki,
    I have read the book more than twice. I am still trying to understand on how to spot the correction. There are so many instances when I felt that the correction will start but that was not the case. can you please guide me on this, how to spot the correction in advance and how to predict where the correction is going to end.

    regds
    Sachin

    • Sachin, I would recommend you read the book a 3rd time, paying attention to wave personalities and trading tactics. Picking tops and bottoms entails needless risk, unless you are an active trader capable to quickly getting out. In the final analysis, trading is about taking sensible risks. I teach that in my seminars and demonstrate it in the premium service. There too we make occasional mistakes, but get out quite quickly, saving a lot of pain!

  33. Hello Sir

    I bought your book last week and am reading it with interest. I has definitely help me enhance my understanding of EWP. Thanks for sharing your valuable experience through this book.

    My experience with EWP application has not been very great so far. At times, I have spotted waves with amazing accuracy, but have been wrong badly too. And needless to mention that I did not have discipline to quit those positions early, when count went wrong. Most troublesome part is labeling corrective waves. Can you please plan to write more on this in future articles/books?

    I have requested the special update through email yesterday but haven’t received it yet. Please see if you send it to me.

    Best Regards

  34. How can I learn about Wave Theory of Stock Market in Kolkata? Will you pl suggest me any Institute or place for it learn???

  35. Dear Shri Ramki Sir,
    I am studying your book.Finding it extremely useful.
    I have, however, a frank & simple query.How to discern a wave correctly?None of the material I have come across so far explains a scientific or at least methodical way of identifying a wave – the starting point & ending point? Or do I take it that a wave count /identification is a subjective issue – open to different interpretations according to each personality?
    I will be really grateful for your elucidating comments on the same.
    With best of regards,
    Shailesh

    • Shailesh, By its very nature, the markets are always a challenge to understand. You should use Elliott Waves as a flexible tool to navigate the changes that are happening. There are no clear answers at anytime.Elliott Waves is an approach to trading. Not the holy grail.

  36. Dear Shri Ramki Sir,
    Many thanks for reply. Your comment certainly gives me a new insight into E.W. principles.A new comer always finds every bit of advice useful.
    With best of regards,
    Shailesh Sardesai

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