Applying Elliott Wave Theory on MC DONALDS by ThinkingAntsOk
Today we will Use Elliott Wave Theory as a method to bring extra information to the chart, remember that this is a tool that must be combined with other trading analysis methods, and the final objective is to bring a clear framework for decision making. We will give a Real example on MC DONALDS chart, Elliot Wave Theory was developed by Ralph Nelson Elliott by observing the behavior of the Stock Market. This is a complex Theory, if you are interested in learning more about this, we recommend Robert Balan´s Book "Elliott Wave Principle"
Remember the Basic 3 Rules of Elliot Wave Theory:
1)Wave 2 will not retrace past the starting point of wave 1. If the impulse waves are going up, wave 2 cannot go below the origin of wave 1. If the impulse sequence is going down, wave 2 cannot exceed the peak from whence wave 1 originated.
2)Wave 3 can not be the shortest of the "impulsive waves". Wave 3 is not necessarily the longest, but it is almost always the longest
3)In an upward sequence. Wave 4 cannot overlap the peak of wave 1. In a downward sequence, Wave 4 can not rally above the bottom of Wave 1. If any of these combinations is violated the particular sequence is not impulsive in nature.
Another important concept is that Markets are Fractals by Nature, that means that the structures that you find on a 1D chart, for example, will be replicated on lower timeframes like 4HS. This Rule keeps going independently of the timeframe you are working on, the same happens on a 1H chart and a 10 minutes Chart. That's the reason you will see different symbols on the Elliott Count on this Example.
Observe how we can make a new Count on the 5th Wave we see on the Weekly Chart (is composed by a new 12345 full count). And if we go to the Daily chart, we can make a new count over the 5th wave of the 5th wave, I know this might sound complex but when you take the idea of Fractals, this process becomes really logical.
In this case, Elliott Wave Theory will tell us that all the Cycles are completed, if we combine this with price action for example (using trendlines) we can see that also the price is against a major trendline that is working as resistance, and the last Item will be the Divergence on MACD. This doesn't mean that the price will go in that direction, but if we have to put our money on something, for sure you want to do it in the strongest direction of your analysis.
Hope this Educational post is Usefull for People interested in Elliot Wave Theory.
Thinking Ants
Remember the Basic 3 Rules of Elliot Wave Theory:
1)Wave 2 will not retrace past the starting point of wave 1. If the impulse waves are going up, wave 2 cannot go below the origin of wave 1. If the impulse sequence is going down, wave 2 cannot exceed the peak from whence wave 1 originated.
2)Wave 3 can not be the shortest of the "impulsive waves". Wave 3 is not necessarily the longest, but it is almost always the longest
3)In an upward sequence. Wave 4 cannot overlap the peak of wave 1. In a downward sequence, Wave 4 can not rally above the bottom of Wave 1. If any of these combinations is violated the particular sequence is not impulsive in nature.
Another important concept is that Markets are Fractals by Nature, that means that the structures that you find on a 1D chart, for example, will be replicated on lower timeframes like 4HS. This Rule keeps going independently of the timeframe you are working on, the same happens on a 1H chart and a 10 minutes Chart. That's the reason you will see different symbols on the Elliott Count on this Example.
Observe how we can make a new Count on the 5th Wave we see on the Weekly Chart (is composed by a new 12345 full count). And if we go to the Daily chart, we can make a new count over the 5th wave of the 5th wave, I know this might sound complex but when you take the idea of Fractals, this process becomes really logical.
In this case, Elliott Wave Theory will tell us that all the Cycles are completed, if we combine this with price action for example (using trendlines) we can see that also the price is against a major trendline that is working as resistance, and the last Item will be the Divergence on MACD. This doesn't mean that the price will go in that direction, but if we have to put our money on something, for sure you want to do it in the strongest direction of your analysis.
Hope this Educational post is Usefull for People interested in Elliot Wave Theory.
Thinking Ants