How do you validate and confirm your Elliott Wave counts when scalping?

1 Know the rules and guidelines

In order to validate and confirm your Elliott Wave counts, it is important to be aware of the basic rules and guidelines of the theory. The rules are essential criteria that must be met for a valid wave count, while the guidelines are common characteristics that usually occur in a wave pattern. For instance, some of the rules include: wave 2 cannot retrace more than 100% of wave 1; wave 3 cannot be the shortest of waves 1, 3, and 5; and wave 4 cannot overlap with wave 1. Additionally, some guidelines include: wave 2 tends to be sharp and deep, while wave 4 tends to be shallow and sideways; wave 3 tends to be the longest and strongest of waves 1, 3, and 5; and wave 5 tends to be weaker than wave 3 and may show divergence with indicators. Knowing the rules and guidelines can help eliminate invalid wave counts and narrow down the possible scenarios.

2 Use multiple time frames

The second step to validate and confirm your Elliott Wave counts is to use multiple time frames. Elliott Wave theory is based on the principle of fractals, which means that the same patterns can be seen at different scales. Therefore, you can zoom in and out of the market to see how the smaller waves fit into the larger waves, and vice versa. For example, if you are scalping on a 5-minute chart, you can also check the 15-minute, 1-hour, and 4-hour charts to see the bigger picture and the context of your trades. By using multiple time frames, you can increase your confidence and consistency in your wave counts.

3 Use Fibonacci ratios

The third step to validate and confirm your Elliott Wave counts is to use Fibonacci ratios. These mathematical relationships, which are often found in nature and the financial markets, provide a way to measure the proportions and projections of the waves, as well as identify potential reversal and continuation points. Commonly used Fibonacci ratios include 0.618 and 1.618 (the golden ratio and its inverse) for measuring the retracement of wave 2 and the extension of wave 3, 0.382 and 0.786 (the square roots of 0.618 and 1.618) for measuring the retracement of wave 4 and the extension of wave 5, and 1.000 (the equality ratio) for measuring the length of wave 5 when it is equal to wave 1. By using these ratios, you can make your wave counts more precise and objective.

4 Use trend lines and channels

The fourth step to validate and confirm your Elliott Wave counts is to use trend lines and channels. Trend lines and channels are simple but effective tools that can help you visualize and validate the direction and structure of the waves. For example, you can draw a trend line by connecting the lows of wave 1 and wave 3, and extend it to project the end of wave 5. You can also draw a parallel line by connecting the highs of wave 2 and wave 4, and extend it to form a channel that contains the entire impulse wave. By using trend lines and channels, you can monitor the support and resistance levels and the breakouts and breakdowns of the waves.

5 Use indicators and oscillators

The fifth step to validate and confirm your Elliott Wave counts is to use indicators and oscillators. These technical tools measure momentum, strength, volatility, and divergence of the waves. For example, moving averages are the average prices of a certain period that can identify trends and crossovers. MACD (Moving Average Convergence Divergence) measures momentum and divergence of the waves. RSI (Relative Strength Index) measures strength and overbought/oversold conditions. Stochastic is a momentum oscillator that measures speed and divergence. By using indicators and oscillators, you can complement your wave counts with additional evidence and signals for confirmation.

6 Review and update your wave counts

The sixth and final step to validate and confirm your Elliott Wave counts is to review and update your wave counts regularly. Elliott Wave theory is not a static or rigid system, but a dynamic and flexible one. The market is constantly changing and evolving, and so are the wave patterns. Therefore, you need to be open-minded and adaptable, and be ready to adjust your wave counts as new information and data become available. By reviewing and updating your wave counts, you can avoid being stuck in a wrong or outdated scenario, and stay in sync with the market.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?