The Elliott Wave Theory is famous for the 5 waves advance and 3 waves declined, as we are showing in the following chart:
As we can see, there are 5 waves up, which each one comes with the subdivisions of 5 wave structure. Most of the trades are able to see and understand the idea. But there are other details within the pattern, which are as important, as the simple 3 rules :
1: Wave 2 cannot pass the beginning of wave 1.
2: Wave 3 cannot be the shortest.
3: Wave 4 can not overlap the peak of wave 1.
We at always look at more tools and details to keep members on the right side and not enter traders against the main trend. One of those details is the Elliott Wave Channels. The Channels are a great tool to know when a cycle has ended helping traders to enter the wrong side of the Market and get trapped for the 5 waves advances. In Elliott Wave Theory there are extensions which happen in one of the 3 main impulses within the higher degree impulse, as we showing in the following chart:
As we can see, there is wave 1 extension. Wave 3 extension or wave 5 extension. Sometimes trades see the 5 waves and start selling premature and get caught at the wrong side.
The Following Chart of $SPY:
The $SPY Monthly chart which is showing a very nice 5 waves since 2009, which is tenting many traders to sell the Index without any indication that any top is in place. If we look at the Blackline is the bottom part of the channel and consequently saying that the Bulls are in control. Therefore, we don’t need to pick a top, not even to called wave (III) in place. Sometimes little details are overlooked and traders ending losing money. Learn that picker gets it wrong 9 times and right only 1. We would rather get it right 9 and wrong 1. Watch the following video to understand the idea of the channel.
