🐋
Whale Trading

Elliott Wave Strategy: Focusing on Structure and Scenarios Instead of Perfect Counting

In this article, we cover a strategy based on Elliott Wave.

Assuming you have already seen in Elliott Wave Pattern:

  • The basic structure of Elliott Waves (1-5 Impulse + ABC Correction),
  • Characteristics of Impulsive vs. Corrective waves (overlap, speed, shape),
  • The point that Wave Theory is more of a framework for organizing structure and scenarios rather than "how to predict perfectly."

Based on that content, here we will view Elliott not as:

"A tool to attach numbers and letters to every single wave," but as "A framework to distinguish whether we are currently in a section where the trend is extending strongly (Impulse), or in a resting adjustment section (Correction),"

and build a simple strategy structure utilized for trend following + pullback entry.

The diagram below shows:

  • Left: Upward Impulse Structure marked 1-5 (1, 3, 5 are trend direction, 2, 4 are pullbacks),
  • Right: The following ABC Correction Structure and a candidate for a new upward impulsive wave appearing afterwards.

The goal of this article is:

  • Not how to match numbers perfectly,
  • But to create a simple framework to distinguish "Is this a section to eat (Impulse), or a section to rest and prepare again (Correction)?"

1. How to View Elliott in This Strategy?

Looking at traditional Elliott books:

  • In addition to 1-5, A-C,
  • Various variations, extensions, and complex structures appear,

It's easy to quickly think, "When should I use this in practice?"

In this strategy, we intentionally simplify and view Elliott as just these three things.

  1. Impulse Wave

    • A section extending strongly in the trend direction,
    • Even if there are pullbacks in between, a wave that generally moves a lot in one direction.

  2. Correction Wave (usually ABC)

    • A resting section that comes after an impulse wave,
    • A wave where the price goes sideways or moves complicatedly in the opposite direction.

  3. Scenario Framework

    • "Is the structure visible now
      • A section stretching straight in one direction like an impulse wave,
      • Or a section twisted like a corrective wave?"
    • We use this as a criterion to divide Trend Following Mode vs. Observation/Pullback Mode.

In summary, Elliott Wave in this strategy is "A language to divide structure," not "A puzzle that must be matched perfectly."

2. Simple Criteria to Distinguish Impulse vs. Correction

Instead of complex rules, let's summarize only the criteria easy to use in practice.

2-1. Characteristics of Impulse (Trend Section)

  • Based on Swing vs Correction, Swings in the trend direction are noticeably large and long.
  • Based on MA-60 Strategy, A section where the price stays above (or below) the MA-60 in one direction for a long time.
  • Even if a pullback (candidate for wave 2, 4) occurs, it does not cleanly break the previous low/high and continues back in the trend direction.

2-2. Characteristics of Correction (Resting Section)

  • A section where the price crawls sideways or is woven in a zigzag.
  • Based on Support and Resistance, A box or channel (structure going back and forth between top and bottom a few times) is clearly visible.
  • Compression patterns like Triangle Pattern, Wedge Pattern may also appear.
  • Based on DMI & ADX, ADX is not significantly high, or it tends to show a sideways movement for a while.

In practice:

  • Rather than guessing "Is this exactly wave 3 or wave 5?",
  • It is much more practical to first divide "Does it feel like an impulse side, or a correction side?"

3. Basic Idea 1: Strategy Targeting "Pullback Waves" Within an Impulse

First, let's look at a strategy using pullbacks (2, 4) within an upward impulse (1-5).

3-1. Environment Setup (Upward Trend Example)

  1. Higher Timeframe Trend

    • Based on MA-60 Strategy, Daily candle above MA-60, highs and lows gradually rising.

  2. Finding Impulse Candidate Sections

    • Look for a section that has recently extended strongly in one direction (candidate for wave 1 + 2 + 3) based on the 4-hour timeframe.
    • Based on ATR Indicator, If ATR has increased compared to before in this section, it is highly likely that trend energy is loaded.

  3. Pullback Wave (2 or 4) Candidate Section

    • After a strong rise, pay attention to sections where "correction forms" seen in Swing vs Correction such as gradual decline, sideways movement, triangle, etc., begin to appear.

3-2. Pullback Entry Structure

Example flow for Long:

  1. Check Pullback Depth

    • Based on Fibonacci Retracement, Check if the pullback stops in the 38.2~61.8% range of the previous upward swing.

  2. Check Overlap with S/R

  3. Check Candle Patterns

    • Based on Candle Patterns, See if patterns where selling pressure decreases, such as long lower shadow, bullish engulfing, pin bar, etc., appear.

  4. Entry, Stop Loss, Target

    • Entry:
      • Consider Long entry when the above conditions (Pullback Depth + S/R + Candle) overlap in one section.
    • Stop Loss:
      • Place it "below the low where the structure can be seen as broken, not just this pullback wave,"
      • Based on ATR Indicator, allow about 1.0~1.5 ATR margin.
    • Target:
      • 1st: Previous high (candidate for wave 3) or top of the box,
      • 2nd: Based on Fibonacci Strategy, 1.272~1.618 extension range.

The core of this strategy is:

If we view it as "Highly likely to be a pullback (2, 4) within an impulse right now," we target a section that extends once more in the trend direction (next wave) at the spot where that pullback ends.

This is the idea.

4. Basic Idea 2: Strategy Utilizing "ABC Correction" After Impulse

This time, let's see how to respond to the correction (ABC) that appears after the impulse ends.

4-1. Signals When an Impulse is Ending

In the upward impulse (1-5) example, characteristics often seen near "Wave 5":

  • Based on ATR Indicator, ATR has been rising for a while, then shows an overheated appearance at the last high.
  • Based on Candle Patterns, Signals of "weakening power" such as long upper shadow, weak body, divergence (e.g., mismatch with momentum indicators) may appear.
  • Based on Support and Resistance, Reaching a large resistance zone on a higher timeframe.

Taking a new Long in such a spot can be dangerous.

4-2. How to Utilize ABC Correction

Corrections can be utilized largely from two perspectives.

  1. Viewing as Observation/Risk Reduction Section

    • If you already have a Long position,
      • Based on Risk Reward, Consider partial profit taking, adjusting stop position, reducing position.
    • Delay new entry for a tempo, and view it as a section to wait until the correction proceeds to some extent.

  2. Viewing as Preparation Section for Next Impulse

    • Find a spot where the ABC correction is somewhat finalized,

    • And target a trend-following entry again in a section where the possibility of the start of the next impulse (new 1-5) exists.

    • In this case as well:

      Focus on the overlapping spots.

The important point is, once you know "The fact that a correction is coming out,"

  • You reduce unreasonable chase entries,
  • And calmly prepare "Can I ride the trend again at the spot where the correction ends?"

5. Common Traps When Using Elliott

5-1. Obsession with Attaching Numbers to Every Section

  • If you say "Here is 1, there is 2, over there is 3..." every time you turn on the chart,
  • You end up spending more energy on counting games than actual trading.

In practice:

  • It is much better to grasp only the approximate structure.
    • "This feels like an impulse,"
    • "This feels like a correction" is often enough.

5-2. Fitting Only "Perfect Counting" to Past Charts

  • You can draw perfect 1-5, ABC on past charts anytime.

  • But in real-time,

    • How far the wave has progressed,
    • What wave number it is now

    is always ambiguous.

So in this strategy:

  • We use only what is distinguishable in real-time.
    • Section extending strongly in trend vs. Section resting complicatedly,
    • "Is this a section to eat mainly, or a section to wait?"

5-3. Trusting Only Waves Without Risk Management

  • If you ignore Risk Management rules saying "It's wave 3 now so I can go in big,"
  • When the counting is wrong, losses can grow rapidly.

Always:

  • Keep in mind that Wave Scenario = Hypothesis only,
  • R/R, maximum loss, and position size must be managed separately according to Risk Management.

6. Elliott Wave Strategy Checklist

Whenever the Elliott structure catches your eye on the actual chart, it is good to recall the questions below once.

  1. "Does the section visible now feel like an Impulse (Trend), or a Correction (Resting Section)?"

  2. "Is it natural to combine this structure with Trend Following Strategy or Mean Reversion Strategy?"

  3. "If viewed as a pullback (2, 4) within an impulse, is the pullback depth (38.2~61.8%) a natural level based on Fibonacci Retracement?"

  4. "If it is a correction (ABC) section, are 'signals that the correction might be ending' visible based on Support and Resistance, Candle Patterns?"

  5. "When all these hypotheses are wrong, is the loss at a manageable level from the perspective of Risk Reward?"

To summarize the Elliott Wave Strategy:

Not "Precise number matching," but A framework to design trend-following and pullback strategies by distinguishing between sections where the trend extends strongly (Impulse) and sections that are resting (Correction)

It can be seen as such.

If you use these together,

  • "Is it a section to enter to eat now, or a section to rest for a tempo,"
  • "How to find the timing when the pullback is ending,"
  • "Does that scenario make sense in terms of R/R"

It will help you judge calmly without overly complex theories.