How can Elliott wave theory improve your TA for commodities?

1 Understanding the basic wave structure

Elliott wave theory proposes that price movements in any market can be divided into five main waves and three corrective waves. The main waves follow the direction of the dominant trend, while the corrective waves move against it. The main waves are labeled 1, 2, 3, 4, and 5, and the corrective waves are labeled A, B, and C. The main waves can also be subdivided into smaller waves of the same structure, and the corrective waves can take different forms, such as zigzags, flats, or triangles.

2 Applying the Fibonacci ratios

One of the key aspects of Elliott wave theory is the use of Fibonacci ratios to measure the length and duration of the waves. Fibonacci ratios are derived from a mathematical sequence that appears frequently in nature and art. The most common Fibonacci ratios used in Elliott wave theory are 0.618, 1.618, 0.382, and 1.382. These ratios can help you determine the potential targets and retracements of the waves, as well as the optimal entry and exit points for your trades.

3 Recognizing the wave patterns

Elliott wave theory can be beneficial in recognizing the different wave patterns that occur in various market conditions. Impulse waves are characterized by a strong and sharp movement in the direction of the trend, composed of five main waves and three corrective waves. Diagonal waves are similar, but with overlapping subwaves. Corrections are counter-trend movements with three corrective waves that can take various shapes and sizes. Extensions are prolonged and exaggerated movements in the direction of the trend, composed of one or more main waves that are much longer than the others. Lastly, triangles are sideways and contracting movements, made up of five corrective waves, that usually precede a breakout.

5 Here’s what else to consider

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