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The 2nd Wave How To Trade It


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#1
Nouf

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Now this is where we start to use Elliott and start looking for a trade setup

Now in real time trading we will never be sure its a 2nd wave as it could be a b wave, but that don't really matter, as all you are looking for on ANY reversal in any time frame is the initial 5 wave impulse

So once you have the initial 5 wave impulse and you are suspect of a reversal because the prior move into the low or high looks complete, then you have a stop point and importantly you know where YOU ARE WRONG

You have risk controlled and defined

How to trade it

Now 2nd waves are actually classic psychology waves in that the virtually trick most into the thinking that the initial 5 wave reversal is going to be completely retraced, only the correction is in 3 waves against the 5 wave impulse wave

So when you look for a suspected 2nd wave correction, it needs to be in 3 waves (or some variation) but in my experience, most times a 2nd wave is a deep Zig Zag (ZZ) towards the 50% or 61.8 fibbo retrace

Here you can start to look for 1x1 measurements and use Fibonacci for support

As long as you can count 5 waves and the retrace is in 3 waves, then the stop is at the origin of the initial 5 wave impulse

Now if you suspect its a 3rd wave to follow then you are looking for an aggressive rally or decline after that, if however it only is a c wave, then you need to start looking for weakness around a 1x1 area and using prior S/R areas as guidance

You can also look at prior fractals to align as well

But with time and practice these will be very obvious in actual real time or any time frame that you trade, you have probably already seen them, you just never knew it

What i have shown here is an ideal view of a 2nd wave, but in general its similar only you need to have the "right look" as well as the 3 wave correction for the 2nd wave, sometimes they only retrace 50% of the suspected wave 1, other times they can be deeper towards the 61.8% or 78.6%

Anything more that a 61.8% is suspect, especially if it looks aggressive as a correction, remember its supposed to be a correction, so if it starts to look wrong, i am of the view that

Why do i need to wait for it to break the origin of the 5 wave impulse???, when the look on the retrace is suspect as a 3 wave correction

Its about wave personality as much as overall look as well, and we want to protect our accounts, if a suspected 2nd wave starts to look and feel wrong, then i want to get out far earlier than waiting for my stops to get triggered as i also want to limit losses as well

The book stays that a 2nd wave CAN NOT retrace more than 100% of the wave 1, only i have always applied the idea that, if what you suspect is a 2nd wave and depending on where it is, ie maybe its part of 12,12 setup, then the move has to show its got the right "look" of the wave you are expecting, if it starts to look wrong and not showing corrective qualities and more impulsive gyrations then you should already be questioning your ideas, not waiting around for more losses to mount

Each individual trader has their own way to trade a 2nd wave, some like to wait for the break of the origin of the initial 5 wave impulse that is labeled as wave 1, i personally am cautious based on the actual look as well as the fibbo retracements, when it starts to look aggressive and move more than a 61.8%, i am on high alert that something is wrong

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