Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels filters out plenty of fake signals and should increase your win ratio significantly. The Elliott Wave and Fibonacci Retracement levels is wonderful combination of strategies that work well hand in hand. Fibonacci uses particular scientific data points to determine specific support and resistance levels whereas the Elliott Wave theory involves a level of subjectivity. Both of these two technical tools points towards the same kind of result. The Fibonacci retracement levels are best to be used on larger time frames because they are more reliable with the big swings in price and the same can be said about the Elliott Wave.

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels

In order to eliminate the level of subjectivity when it comes to dealing with Elliott Wave is to use a technical indicator that will automatically plot the Elliott Wave count on your chart. Going forward, in this article whenever we’re referring to the Elliott Wave we’re going to use the Elliott Wave MT4 indicator that besides counting the five Elliott Wave pattern, which is the basic Elliott Wave pattern, it also plots the major up and down swing legs so you can have a better visual representation of the price action.

Elliott Wave MT4 Indicator Settings

 

Elliott Wave MT4 Indicator Settings

Elliott Wave MT4 Indicator Settings

The preferred settings for the Elliott Wave MT4 indicator are the default settings. The Elliott Wave MT4 indicator is a customizable indicator with 3 main variables:

  • ExtDepth= This variable is designed to customize how far away would you like the indicator to begin displaying the Elliott Wave count
  • ExtDeviation= Deviation from ExDepth
  • SoundAlertMode= 0 for sound to be deactivated and 1 for active sound alerts

Click here to download a free copy of the Elliot Wave MT4 Indicator

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels

It doesn’t require being an advanced trader to successfully apply the Elliott Wave theory in combination with the Fibonacci Retracement levels. However, you still need to know the optimum time to get in any trade which is after the five wave cycle within the Elliott Wave pattern has been completed because that’s the signal of a reversal coming in or at least a 3 corrective waves should be seen.

Usually, the Elliott Wave MT4 Indicator will automatically plot for you in advance when the 5th wave is finished and usually that the time you want to entry in the market. The Fibonacci Retracement levels are a great way to be used to know when to take your profits as usually after a five wave cycle is completed the market retrace and correct that cycle to the 50% Fibonacci level. This is a universal strategy that can work on the larger time frames as well as on the short-term time frames. Without further ado, these are the buy/sell signals of the Elliott Wave and Fibonacci Retracement Strategy:

  • Buy Signal: Entry a buy order at the market as soon as the Elliott WaveMT4 indicator displays a five wave pattern on your chart. Use a protective stop loss of 10 pips below the plotted wave 5 and take profits once it pulls back to the 50% Fibonacci Retracement level of the entire five wave cycle.
  • Sell Signal: Entry a sell order at the market as soon as the Elliott WaveMT4 indicator displays a five wave pattern on your chart. Use a protective stop loss of 10 pips above the plotted wave 5 and take profits once it pulls back to the 50% Fibonacci Retracement level of the entire five wave cycle.

Long and Short Trade Example

In Figure 3 we have the EUR/USD 4-hour chart and a short trading opportunity is highlighted. This is a very good example to showcase and to fortify the power of the Elliott Wave MT4 indicator which correctly predicted a truncation in wave 5. The truncation happens when the 5th waves fail to go beyond the end of wave 3. Truncated fifth waves are very hard to predict and anticipate the Elliott Wave MT4 indicator is pretty good at identifying this pattern.

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels - Long and Short Trade Example

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels – Long and Short Trade Example

If you’re a swing trader trading off of the daily chart the Elliott Wave Mt4 indicator can also identify major reversal of the dominant trend. In Figure 4 we have the NZD/USD Daily chart and already a 5 wave pattern has been identified. Our protective SL should be placed above wave 5 and our target, which has not been reached, should be the 50% Fibonacci Retracement measured from the wave 1 base.

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels - Long and Short Trade Example 2

Applying Elliott Wave Theory Profitably with Fibonacci Retracement Levels – Long and Short Trade Example 2

Short term and long term traders can both successfully apply the Elliott Wave and Fibonacci Retracement strategy. If you’re a fan of Elliott Wave theory, then this strategy can definitely improve your wave count and you can have more confidence in relying on the Elliott Wave MT4 indicator counts because they have proven to be accurate. Take note, however, there is no 100% strategy. You will experience losing trades even with something so reliable but you will soon find that you have the odds of winning stacked in your favor.


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