Chapter 7

Elliott Wave Trading for Commodities

Introduction

Most successful traders have one thing in common: They find an edge or a few edges and keep trading them—be it an edge in money management, asset allocation, technical analysis, or a combination of these. In this chapter, a couple of advanced technical analysis methods will be discussed in great depth.

Basic technical analysis consists of price pattern recognition and repetition for an underlying asset over time. With the advancements of computer processing and its affordability to the average person, highly complex and advanced technical analysis is now readily available to retail traders. However, technical analysis studies are often lagging in time or correct only after an event has occurred. Elliott Wave analysis constitutes one of the very few technical tools that can be predictive in nature and provide traders with a decisive edge when used with other, simpler indicators.

Elliott Wave Analysis images

named after Ralph Nelson Elliott, this form of technical analysis is based on the premise that markets can be predicted by observing and identifying repetitive patterns or waves. The three major aspects of wave analysis are pattern, time, and ratio.

Ralph N. Elliott recognized that the price patterns of the Dow Jones Industrial Average (DJIA) were repetitive up to the mid-1940s. Through his research, he constructed principles ...

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