Trade Gold Trading

The Elliot Wave Theory in Gold Trading

This is a form of trading analysis that traders and other investors use to forecast price trends in the markets by identifying extremes in the investor psychology, highs and lows in xauusd prices, & other collective activities. This gold theory model shows that collective human psychology forms in natural patterns over time, through buying & selling decisions reflected in the market prices.

This theory of analysis was developed by Ralph Nelson Elliott that is based on the theory that, in nature, many things happen and occur in a five-wave market pattern. These patterns are also applied to trading analysis, to analyze & interpret the behavior of price trends using this technical analysis theory.

When this theory is applied to Gold, the assumption is that the market will advance in a pattern of five waves - 3 up moves, numbered 1, 3 & 5 - which are separated by 2 down moves, number 2 and 4. When the three upward moves (1, 3, 5) are combined with the two downward moves (2, 4), they form the 5 Wave trading pattern.

The trading analysis theory further holds that each five-pattern upward move will be followed by a downward move also consisting of a three-pattern down moves - this time, 3 down ones are not numbered but use the letters A, B and C. So as to differentiate these from the 5 ones for the up move.

5 & 3 Wave Pattern

The main trend will comprise of 5 moves while the market retracement will comprise three moves.

Five pattern (dominant trend) - uses 1, 2, 3, 4, 5

Three pattern (corrective trend) - uses A, B, C

Elliot Wave Theory PDF - Elliott Wave Theory - Trading Elliot Wave Theory Trading Analysis

This article is about how to trade online markets using the Elliott Theory as the driving force of trading instruments. This model relies heavily on looking at xauusd price charts. Technical analysts use this theory to study developing trends to identify the waves and discern what xauusd prices may do next.

By analyzing these patterns on a chart and applying the Elliott Wave Theory, gold traders are able to decide where to get in and where to get out by identifying points at which the market is likely to turn.

One of the easiest places to see this theory at work is on the market, where changing investor trading psychology is recorded in the form of trading price moves. If a trader can identify repeating patterns in xauusd prices, & figure out where these repeating pattern formation is compared to the Elliott setup counts then the online trader can predict where the prices are likely to head to.

Rules for Elliott Count in Gold Trading

Based on the market patterns formations and occurrences formed by this trading theory, there are several guidelines & rules for valid Counts:

  1. Wave 2 shouldn't go below the starting of Part 1.
  2. Wave three should be the biggest among Part 1, 3 and 5.
  3. Wave 4 should not over-lap with Part 1.

Five pattern (dominant trend)

Elliott Wave Theory - XAUUSD 5 and 3 Wave Elliot Count Rules

1: This one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news data is almost universally negative. The previous gold trend is considered still strongly in force. Fundamental data analysts continue revising their estimates lower: the beginning of a new trend probably does not look strong. Sentiment surveys are still bearish and the implied price volatility in the market is high. Volume may increase a bit as prices rise, but not by enough to alert many technical analysts.

2: This one two corrects 1, but can never extend beyond the starting point of wave 1. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" mentality reminds all that the bear market is still in place. Still, some positive signals appear for those who are looking: volume should be lower during 2 than during 1, trading prices usually and generally do not retrace more than 61.80% of 1 part one gains. Price will reach a low that is higher than the previous low resulting in to a higher low.

3: This is usually and generally the largest and most powerful move upwards, larger than 1 and 5. News is now positive & fundamental analysts start to raise estimates. Prices rise quickly, corrections are short-lived & shallow. Anyone looking to get in on a pull back will likely miss the boat. As 3 starts, the news is probably still somewhat bearish, & also most/many traders remain mostly negative: but by part 3 mid-point, the crowd will often join in and agree that the new market sentiment is bullish. Wave three will extends beyond the highest level reached by 1.

4: This is typically & clearly corrective. Prices might move sideways for an extended period, and 4 typically retraces less than 38.20% of 3. Volume is well below that of wave 3. This is a good place to buy a pull back if you as trader understand the potential that is ahead for a Part 5. Still this 4 is often frustrating due to their lack of progress in the larger upward trend.

5: This is the final phase in the direction of the dominant market trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average traders finally buy in, right before the price hits the top. Volume is often lower in 5 than in wave three, and many momentum technical indicators start to show divergences (trading prices reach a new high but the indicators don't reach new highs). At the end of a major bullish market trend, bears may very well be ridiculed, for trying to pick a market top.

Three Pattern (Corrective Trend)

Corrective Trend - Gold 5 and 3 Wave Elliot Count Rules

A: Corrections are often much harder to identify than the impulse moves. In A of a bearish market, the fundamental news is generally still positive. Most analysts see the drop as a correction in a still active bull market. Some technical indicators that accompany A include increased trading volume, rising and implied volatility & possibly a higher open interest in selling/shorting.

B: Prices reverse and move slightly higher, which many see and interpret as a resumption of the now long gone bullish trend. Those familiar with classical trading analysis might see the peak as a right shoulder of a head and shoulders reversal trade pattern. The volume during B should be lesser than in A. By this point, fundamentals are probably no longer improving, but they most likely have not yet turned negative.

C: Prices move impulsively lower. Volume picks up, & by the third leg of C, almost just about everyone realizes that a bearish market trend is firmly entrenched. C is typically at least as large as A and often extends to 1.618 Fib expansion level beyond A lowest point.

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