Confirmation Stages For Corrective Waves – Elliott Waves Theory

Elliott Waves Theory

Trading with Elliott Waves Theory has its advantages and disadvantages and probably the debate can continue here forever as traders are split between appreciating it and disregarding it totally.

I would say it is more about what the objectives are and in this way, binary options trading seem suitable for Elliott Waves Theory. Or the other way around, it doesn’t change anything.

The thing is that Elliott is a relative theory, in which a trader should consider multiple scenarios and by the time one is invalidated, the count is invalidated, and the focus should be on the valid ones, and so on, until the right scenario remains on the table.

Now, of course that much depends on the time frame that is analyzed, as, for example, if one is looking at a contracting triangle on the daily chart then there is no point to trade 60 seconds binary options as the market will kick you out sooner rather than later. Or 5 minutes or 1 hour as a matter of fact.
Elliott comes with a set of rules for each pattern that market makes, and applying them allows one to forecast the price action on the right side of the chart. After all, information on the left side of the chart is nothing but free information, right?

Confirmation Stages in Corrective Ways

The two recordings that are coming with this project shows you the confirmation stages for corrective waves, in the sense that contracting triangles, x waves, flats and zigzags, wave some tips and tricks that can make the difference between a winning and a losing option.

A corrective wave is nothing but a range and depending on the time frame one is doing the technical analysis, the range can be bigger or smaller, take more or less time than another.

For example, a contracting triangle that is consolidating on the lower time frames, like the 5 minutes chart or the hourly chart should imply a different expiration date for an option then a triangle that is forming on the daily chart or higher.

Adjusting the expiration date to the time frame is key to successful trading.

Using the B-D Trend Line for Triangle Confirmation

A triangle for example is confirmed by looking at the way the b-d trend line is broken. Any triangle is formed out of five different waves (a-b-c-d-e) and these waves are all corrective. By connecting the a-c and b-d trend lines, the triangle is formed. It can be a contracting one, if the trend lines are meeting somewhere in the future, or it can be an expanding one is the trend lines are moving in different directions.

For the confirmation of the triangle, regardless if it is a contracting or an expanding one, we should look for the b-d trend line to be broken in less than the time taken for the e wave to form. This means that taking a shape and counting the candles for the e wave will give us the estimated maximum time the b-d trend line should be broken.

If it is broken in due time, it means the triangle is completed and confirmed and a new wave is starting or already started. If the triangle is a reversal pattern and the trend is changing, look for bigger expiration dates for your options while if the triangle is a continuation pattern then look for a limited price action.

There is also customary for the triangle to break the b-d trend line and then retesting it but that is not mandatory. However, a retest of the b-d trend line is a confirmation sign and most of the times it is the perfect striking price for any kind of binary options trading.

Another trick to use when trading binary options with Elliott Waves Theory is to wait for a channel to be broken before taking the trading decision. The reason for that is the fact that only zigzag family patterns are channeling and by the time the channel is broken it means the double or triple zigzag is completed and a move in the opposite direction should start. But because a zigzag family pattern is a corrective wave, or a three wave structure, it means the retracement should be at least 61.8%.

Using Fibonacci with Elliott

Therefore, taking a Fibonacci retracement tool and dragging it from the beginning of the zigzag family pattern and all the way to the low (in a bearish trend) made after the channel is broken is giving us the target to the upside. The same is valid in the opposite direction as well.

When it comes to impulsive waves, the fact that the alternation between the 2nd and the 4th waves is a must, it means channeling is out of the question. There is nothing more important in an impulsive move than this alternation and this is the one thing that is confirming any five wave structure.