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Elliott Wave Strategy

Discover our Elliott Wave Strategy Pine Script template, designed for traders seeking to identify potential wave extensions using Fibonacci levels. Easily backtest on TradingView and live execute this template on AlgoTest, adjusting inputs like Fibonacci level, target points, and stop loss points to suit your trading preferences.

Elliott Wave Indicator Pinescript​

//@version=5
strategy("Elliott Wave Strategy", overlay=true)

// Input parameters
fib_level = input.float(1.618, title="Fibonacci Level")
length = input.int(10, "Length of Historical Candles")
target_points = input.int(100, title="Target Points")
stop_loss_points = input.int(50, title="Stop Loss Points")

// Calculate Fibonacci retracement levels
wave_high = ta.highest(high, 10)
wave_low = ta.lowest(low, 10)
wave_range = wave_high - wave_low
fib_0 = wave_high
fib_100 = wave_low
fib_1618 = fib_0 - fib_level * wave_range

// Plot Fibonacci retracement levels
plot(fib_0, color=color.blue, title="Fib 0.0")
plot(fib_100, color=color.red, title="Fib 100.0")
plot(fib_1618, color=color.green, title="Fib 161.8")

// Strategy logic
long_condition = ta.crossover(close, fib_1618)
short_condition = ta.crossunder(close, fib_1618)

// Strategy entry
if long_condition
    strategy.entry("Long", strategy.long)
if short_condition
    strategy.entry("Short", strategy.short)

// Calculate target and stop loss levels
long_target = close + target_points
long_stop_loss = close - stop_loss_points
short_target = close - target_points
short_stop_loss = close + stop_loss_points

// Strategy exit
strategy.exit("Long Exit", "Long", limit=long_target, stop=long_stop_loss)
strategy.exit("Short Exit", "Short", limit=short_target, stop=short_stop_loss)

Understanding the Elliott Wave Indicator​

History of the Elliott Wave Indicator​

The Elliott Wave Theory was developed by Ralph Nelson Elliott in the late 1930s. Elliott discovered that stock markets, thought to behave in a somewhat chaotic manner, actually did not. They traded in repetitive cycles, which he pointed out were the emotions of investors caused by outside influences (ahem, CNBC, Bloomberg, ESPN) or the predominant psychology of the masses at the time. Elliott explained that the upward and downward swings in stock market prices caused by the collective psychology always showed up in the same repetitive patterns. He called these upward and downward swings "waves".

What is the Elliott Wave Indicator?​

The Elliott Wave Indicator is a methodology for financial analysis that is used to forecast trends in the market prices by identifying extremes in investor psychology, highs and lows in prices, and other collective factors. Ralph Nelson Elliott proposed that market prices unfold in specific patterns, which practitioners today call Elliott Waves. The theory identifies two main types of waves: Impulse Waves that move with the overall trend and Corrective Waves that move against it.

Best Use Cases for Elliott Wave Indicator​

  1. Trend Identification: The Elliott Wave Indicator is excellent for identifying market trends and turning points. Traders use it to forecast where prices are likely to head next, making it a powerful tool for entry and exit strategies.

  2. Risk Management: By understanding the probable end points of waves, traders can set stop-loss orders to manage risk effectively. Knowing how far a wave might extend can help in setting realistic profit targets.

  3. Portfolio Diversification: Investors use Elliott Wave analysis to identify potential investment opportunities in different markets or asset classes that may be at different points in their Elliott Wave patterns.

Frequently Asked Questions​

Does Elliott Wave really work?​

Elliott Wave Theory is well-respected and used by many professional traders and analysts. However, like any analysis tool, its effectiveness depends on proper application and market conditions.

What is the concept of Elliott Wave Theory?​

Elliott Wave Theory is based on the idea that markets follow predictable patterns called waves which are a result of investor sentiment and mass psychology.

What is the Elliott wave 5 3 5?​

This refers to the typical structure of Elliott Waves where a five-wave sequence (indicative of the trend) is followed by a three-wave sequence (a counter-trend correction), and then another five-wave sequence.

How do I identify my Elliott wave pattern?​

Identifying Elliott Wave patterns requires understanding of wave structures and their characteristics, such as wave length, wave height, and wave subdivisions. Traders often use software or technical analysis tools to help identify these patterns.

What are the three rules of the Elliott wave?​

The three immutable rules of Elliott Wave Theory are: Wave 2 cannot retrace more than 100% of Wave 1, Wave 3 cannot be the shortest among the three impulse waves, and Wave 4 cannot overlap with the price territory of Wave 1.

For more insights and detailed analysis tools, visit AlgoTest Signals