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The 4th Wave How To Trade It


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#1
Nouf

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If there is a wave that i personally don't like trading its this wave in a 5 wave sequence, simply because it tends to be choppy and sloppy and generally a mess to trade, it also tends to sit and move sideways hence why triangles are seen in the 4th wave position

How to trade it

Simply, you don't really want to actually trade the gyrations, because you want to get in to buy on a Bull trend or sell on a Bear trend as you are trading against the trend trying to actually trade a 4th wave

Its much easier to try and work out the actually probable pattern, either a flat or triangle is favorite and the work out a target based on Fibonacci, a common relationship is a 38.2% of the 3rd wave

However in cases where the 3rd wave has extended towards a 2.618 ext of the 1st wave, then there are times that because the 3rd wave is very strong, you only see a shallow retracement for the 4th wave towards a 23.6% of the 3rd wave

That actually fools many looking for the common relationship of a 38.2% of the 3rd wave, but in general the 38.2% of the 3rd wave is a good fibbo target to look for.

If its an obvious triangle in the 4th wave, then even better as triangles are nasty patterns to actually trade, but once you can work out the wave [a] point of the triangle you have a defined stop, although they can also morph into other potential patterns (see the triangles section and how to trade it)

Once you can be comfortable that you are watching a 4th wave in progress ie you have seen a large 3rd wave, then you then have a decent setup to buy or sell in the immediate trend

I have a love/hate relationship with 4th waves, as i know where you are in a 5 wave sequence, only they tend to chop up traders and particularly known for those boring flat chop shop days where nothing happens for hours & hours

So i tend to try and avoid trading them and just watch for an entry point so i can get on the 5th wave to new high or lows

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