I remember when I first tried to implement Elliott waves into my strategies — total failure. It seemed like it wasn’t suitable for both automated bots and manual trading. I spent two years only working with linear programming and indicators until I noticed that the best traders actively use this approach. I decided to understand it seriously.

Now I understand why. Elliott wave rules work like a map of price movement. Technical indicators and support-resistance levels won’t tell you where the price will go. You just blindly open a long when the stochastic crosses. But when you understand the wave structure, profits grow much faster, even when combined with regular strategies.

The whole point is that markets move according to a basic structure: five impulsive waves up, then a retracement ABC down. Waves 1, 3, and 5 are impulsive (consist of five subwaves), waves 2 and 4 are corrective (three waves). In a bear market, it’s the opposite: A and C are impulsive, B is reactive.

How to determine the end of each wave? Four confirmation tools are needed. Divergence on the Awesome Oscillator — when the price is higher but the oscillator is lower. A fractal at the top or bottom. A hammer on the MFI — the last struggle between bulls and bears. A change in the AO histogram color. And a Fibonacci target zone. Without this, Elliott wave rules don’t work.

Wave 1 begins after the previous trend ends. It always consists of five waves, so expect the same five trend-killing signals between waves 3 and 5. Wave 2 is a retracement, usually ending within the 0.38-0.62 retracement range of wave 1. Wave 3 is the most impulsive, where the most profitable trading occurs. Look for a Fibonacci extension target of 1.0-1.61.

Wave 4 can be a zigzag, flat, or even a triangle. The target zone is 0.38-0.5 of wave 3. A very reliable level is where wave 4 ended inside wave 3. Wave 5 is the final impulsive wave. After it, a bear market begins, so it’s crucial not to miss the exit. The target is between 0.61 and 1.0 of the distance from the base of wave 1 to the top of wave 3.

Corrections are the most dangerous part. It’s better to trade only wave C in a zigzag, skip the rest. Remember, waves C and E always consist of five waves, so apply the same Elliott wave rules to determine their ends.

I’ve managed to catch the bottom and sell at the top many times, but honestly — I never managed to catch the peak of the extended wave 3. More experience is needed. But even with my current level, the results are much better than before. If you understand the market structure, trading becomes much easier and clearer.