Forex Trading Strategy - How to Use Eliot Waves

By Albert Schmidt

Many new traders are attracted by the seeming simplicity of the Eliot Waves. They first see and study what is on the surface - the wave shapes and their features. If they go deeper they may start from the wave shapes, geometric figures and fractals of Bill Williams. They ignore the fact that the foundation of the wave principals is the simple rules of technical analysis - momentum and correction. Those rules reflect the psychological state of the market participants.

You can use Eliot Wave analysis in any market the only requirements are high volume of transactions, large number of participants and quite a long data history. That's why Forex is an ideal market for the Eliot Wave analysis.

The most challenging thing in using Eliot waves is their subjective nature. It may be easy to identify the waves in retrospect but for many traders it is quite a difficult task to identify the current wave. Identifying only the past waves is not practical for trading.

So how would your start the Eliot wave analysis? I think we need to remember the major principal of going from simple to complex. Actually Eliot never explained why market moves in 5 ways in one direction and in 3 waves in opposite direction. He presented it as a fact that does not require any proof.

It is a fact indeed like momentum of movement and correction of a movement. In my opinion we need to use simple approach to Eliot wave analysis. Either you have a momentum or you have a correction of the price movement. Then apply the hierarchy and Fibonacci numbers to momentum and correction and you will have simple wave analysis.

Of course it will take some time to get used to Eliot waves analysis. It is not that hard as it seems to be. How hard it was for you to learn swimming. Once you learn to hold your balance in water the rest is easy. The same thing is with the Eliot Waves. First it seems impossible to identify the current wave but over time with practice you will easily identify what wave market is in.

Albert Schmidt is a part-time currency trader. After quite a long time of struggle he learned to make consistent profit trading in Forex. Review a trading strategy he successfully uses in his trades.