Trading five-wave reversals by Dan Akin Dimock
Where is the best place to enter a trading or longer-term investment position within the entire five waves up/three waves down cycle of any market? How is the starting point recognized before the action begins? The Elliott Wave Theory may provide the answers.
Let's not kid ourselves. Trading is extremely risky. What method, other than Elliott Wave, provides error recognition by allowing the trader to know in advance what sequential events must follow for the trade to be successful and, by their failure to occur, alerts the trader to exit the trade before much, if any, damage is done?
Elliott Wave also makes it possible to differentiate between main trend and countertrend (bear) markets. This is because g five-wave advances will occur in the direction of the main trend and these, when concluded, are always opposed by three countertrend waves of like degree (the 5/3 pattern). Therefore, movements limited to three waves occur only within the corrective phase of a market.
The concluding 5/3 wave — wave C in Elliott Wave nomenclature — signifies that a new primary trend or, at minimum, a good opportunity is next. One tip-off that this third wave is concluding is its distinctive "signature" — it subdivides into five waves within the zigzag or flat corrective patterns. When wave C occurs within the triangle corrective pattern, however, it
subdivides into three waves.