tactical trader

In this, the first in a series of articles, Steve Griffiths looks at the complexities of Elliott Wave and introduces an approach that can be used to identify low risk, high reward trading opportunities.

Elliott Wave (EW) is a dirty phrase in some quarters. Despite the seductive rigours of its construction (markets tend to move in a five-wave sequence followed by a three-wave correction), the forecasts and claims of practitioners and gurus have often led many traders astray.

It is now over 70 years since R. N. Elliott (pictured, right) first unveiled his approach - however, as Frost and Prechter state in the seminal Elliott Wave Principle , “for all his meticulous study and profound discovery, he displayed a typical investor’s weakness in (at least once) allowing a prior opinion adversely to affect his objectivity in analysing a market”! EW has often come in for heavy criticism down the years. In part, this is down to the inevitable over-complication by analysts and waywardness of some of their forecasting.

Many traders have come to find it impossible to trade with decisiveness and control as they struggle to find a decent-looking pattern – maybe one that fits into larger patterns and yet breaks down into smaller patterns (there are 9 conventional timeframes); one that doesn’t need mysterious ‘X’ waves to link it to previous patterns; one which obeys all Elliott tenets. Once over these hurdles, they will then often suffer a change of EW count on their trade chart – perhaps a long becomes re-labelled as a short or vice-versa!

So, what’s the answer? Elliott can still have a lot to offer as a framework for trading, as opposed to forecasting so...simply avoid these clear pitfalls! Some of its basic premises can be stripped out legitimately and used in a highly consistent trading plan built on assessment of trade risk and reward.

The Isolation Approach™

How can Elliott be used to find low risk/high reward trades – the goal of any trading method or software program…