# The Perfect Market Condition to Apply Elliott Wave Theory Principle

What is The Perfect Market Condition to Apply Elliott Wave Theory Principle is one of the most common question asked byÂ trend traders. One of the most compelling and popular marketed trading system for analyzing the markets is the Elliott Wave Theory Principle. The Elliott Wave principles are the very compelling rationale of how the markets work and claim that it can predict market movements in all time frames. However, Elliott Wave analysis has its drawbacks or the disadvantage of being purely subjective in nature. The success of correctly applying the Elliott Wave theory depends partially on your level of experience using the Elliott Waves, but at the same time, it also depends on the market conditions.

## So What is The Perfect Market Condition to Apply Elliott Wave Theory Principle?

At its core, the Elliott Wave theory is a trend following strategy because it tries to spot the dominant trend and trade it. In this regard, the perfect market condition to apply the Elliott Wave theory is in a trend trading environment. The Elliott Wave theory simply put is a five wave pattern or a five wave sequence of trading behavior. So, the general Elliott Wave theory states that a market will trend in five wave sequences and once the fifth wave is completed, we could see either a reversal developed in three corrective waves or a major trend reversal.

In real time there are certain elements of these five wave patterns that are more predictable than the others as they are occurring. They are predictable not just after the fact, they are predictable as the market is trading and wave four or five are your most predictable Elliott Wave sequences. But you also have to get used to and be comfortable as a trader to the fact that youâ€™re not going to be able to get every single market.

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Now, that we have learned that the perfect market condition to apply the Elliott Wave principles is in a trend trading environment and more, we know that wave four and five are the most predictable, this can be the base for our Elliott Wave strategy.

## Effective Trend Trading With Elliott Wave Theory Principle

We need to take that predictive nature of Elliott Wave and turn it into a practical system. Trading with the Elliott Wave principles first requires getting used being patience and wait until you see a clear four waves that comply with the Elliott Wave rules. Being on the right side of the market is crucial when applying the Elliott Wave theory and trading in the direction of the prevailing trend is our goal. We need a tradable Elliott Wave sequence and just a four-wave pattern can give us the right map to try to only trade in anticipation of the wave five. In essence, the proposed Elliott Wave strategy is to wait for a four-wave rally before buying in anticipation of a five wave Elliott Wave pattern completion, and sell after four waves sell-off in anticipation of a five wave Elliott Wave pattern completion.

## The Perfect Elliott Wave Theory PrincipleÂ Trade Setup

A picture speaks a thousand words and in the chart below,Â we have the USDJPY weekly chart with the right Elliott Wave sequence. The higher the time frame used the more accurate your trading will be and subsequently more profitable, thatâ€™s why weâ€™re using the weekly chart to showcase the true power of Elliott Wave theory. Based on the Elliott Wave principle, wave 4 can have the same price length as the wave 2 which can give us a good buying level in anticipation of the Elliott Wave sequence to complete.

As mentioned earlier,Â Elliott Wave Theory Principle is a multi-time frame strategy that can spot trends even on the lower time frames. To illustrate the agility of the Elliot Wave Theory Principle,Â we have the GBPUSD 5-minute time frame where we can spot in advance a clear four-wave movement. We want to buy as close as possible to the termination of the wave 4 and an alternative method is to draw a trend line from the beginning of wave two to the end of wave three and then project a parallel line off the end of wave two.

A lot of the times finding the termination of wave 4 and a good place to buy can be very challenging. A more conservative way of trading the five Elliott Wave pattern is to enter once we break above the end of wave four. The only disadvantage with this approach is that the profit margin will decrease. In our final example, we will apply the Elliott Wave Theory Principle on a major Forex pair, the EURUSD. Now, we have the EURUSD chart setup and a perfect buying opportunity signaled with the help of the Elliott Wave Theory.

## Types of Market Conditions Not to Use Elliott Wave Theory

Trading in a consolidation or ranging market even though the Elliott Wave principles can provide us with a good map to navigate the market, itâ€™s not enough because there are just too many variations and trading just on Elliott Wave alone can be proven very hard. Trading with the Elliott Wave theory is about what can we see with a certain degree of predictability to focus our trading on and sometimes you have to get used to being able to do nothing. There are going to be times when the best trade is to sit on your hands and not do anything.

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