Here's an explanation why Elliott Waves don't work most of the time, and then sometimes work perfectly.
Lets take a closer look at a single impulse wave up and its correction (I'm using 61.8% retracement and wave 3 = 100% of wave 1). You simply can't trade based on that (red dots), here's why.
If you treat it as 123 up trend forming (green count), you can't confidently:
1. short at the end of 1 to catch wave 2 because it can go higher (have an extension from 100% to 127.2%, 161.8% and 261.8%)
2. long at the end of 2 to catch wave 3 because it can go lower
- from 23.6% to 38.2%, 50% and finally 61.8% and then go up for the up trend 123
- up to 88.6% of wave W in wave X and then go up in Y (if this is X not 2)
- and even lower after that, break the start of wave 1 to reverse the trend down
3. short at the end of wave B (red) after a bounce from wave 2 to catch wave C (red), because it can go higher
- it can go up from 23.6% to 38.2%, 50% and finally 61.8% of prev swing wave A (red) and then bounce down as zigzag or triangle
- it can retrace as wave B (red) in a flat up to 88.6% and then go down still
- or it can even be an expanded flat wave B/X and retrace up to 138.2% of wave A (38.2% above the end of wave 1, Sometimes even 61.8%! and only then drop down)
- or it will go up in wave 3/Y = 100% of wave 1/W
4. long on breakout of the end of wave 1 to catch wave 3 because it can pullback
- it can be wave a of Y or lower degree iii or 3 and immediately pullback in b/iv below wave 1
- it can be an expanded flat wave B/X and retrace from 105% up to 138.2% of wave A (38.2% above the end of wave 1, Sometimes even 61.8%! and then drop down)
- it can be a short Y = 61.8% of W in WXY and then go down
That's why you are only supposed to buy on a retest of wave 1 after the breakout
5. long at the end of wave C (next bounce from the end of B) (red) because it can go lower
- it can become a triangle ABCDE and break the other way
- it can still be wave B and go higher up a bit then down in zigzag/flat (same impulse-correction fractal of a lower degree, same options, see #3)
- it can break the end of wave 2 and continue down as wave C from 61.8% up to 1.618% of wave A, although we mostly have short C = 61.8% of A in Bitcoin
So, on the long side you are left only with 2 not-so-tradable options:
- buy above 138% of wave 1 to ride a very small ~10% (100% - wave B retracement - 38%) chunk of wave 3 = 100% of wave 1.
However, the expanded flat can still go to 161.8% and wave 3 can end early at 61.8% as wave C/Y.
And if not that, this trade probably has a bad R/R and you will pay in fees a lot more that you possibly can gain.
- buy on retest of wave 1/A/W in iv/x after the breakout to ride wave 3/C/Y (100% - wave 2/B/X retracement) up to 38.2% in case of an expanded flat or up to 100% of wave 1 in case of wave 3/C.
And you can only to the 2nd option on the short side, because usually C = 61.8% of A, not 100%, invalidating the first setup.
But guess what, that's called trading breakouts from a range/triangle, and you don't need Elliott Waves for that.
Conclusion:
I just showed you that in most cases Elliott Waves don't really work, they give you a number of possibilities for both bull/bear cases, not trend direction.
You can't trade based only on Elliott Waves and fibs, without using other TA methods.
The trend is basically just a sequence of 2 impulses and then comes a wave 4 which can become the 1st impulse down and reverse the trend or go up in wave 5. Waves 3 and 5 are not guaranteed. The only thing guaranteed is a 2nd impulse following the 1st. But in the current market with unclear 3/5 wave structure, low liquidity, hidden bottoms and traps you can't clearly spot even the 1st impulse, so there might not be a 2nd one.
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