If you haven’t already completed the steps in the Quick Start, you should do that now to produce your first automatic wave count. Then come back here and read on…

Now that you’ve calculated an automatic wave count, it’s time to assess the count and evaluate any potential trading opportunities. Here are some tips to help you get started:

 

Wave Count Basics

 

• At the high and low turning points in the chart, you’ll see both the wave label, which identifies what kind of wave has been detected, as well as…
• The number of bars it took for each wave to complete – the number next to the wave label (if “Show # bars on waves” is enabled, see Smart Tools)
• The waves are stacked to indicate each wave’s degree (timeframe). Wave labels further away from the price are at higher degrees (larger timeframes).
• Hovering (or touching) a wave label will show the line connecting to the other sub-waves in the pattern. This group of sub-waves defines exactly one valid Elliott Wave pattern.
• Hovering (or touching) a wave label also displays key details about the wave (if “Show wave info” is enabled, see Smart Tools).
• In most cases, some waves in a count will have a question mark “?” next to them. This indicates that the wave has not yet been confirmed. In these cases, it is recommended to closely inspect the wave pattern to determine the likelihood that the placement of the questionable wave is reasonable. The best way to accomplish this is by using the Smart Support/Resistance tool to better understand how the placement of the wave compares to the highest probability price area for that particular wave.

 

One of many possible counts

It’s important to remember that the AutoCount that WaveBasis displays is one of potentially several (or many) possible valid counts that the pattern recognition engine has looked at and evaluated. WaveBasis has selected the count that is statistically most likely to accurately describe the current market context. In many cases, to better understand the risk associated with a trade you may be considering, and to tip the probabilities further in your favor, it is advisable to also consider alternate wave counts.

 

Dashed lines in counts

Sometimes the first highest-degree point in a wave count or pattern is a wave rather than the typical “zero” starting point of a wave count or pattern. Typically, it will be a wave 1 or wave 3. When you hover over a wave in one of these patterns you will see there is a dashed line connecting the waves of the pattern rather than a solid line. To see the lines you must have Show Wave Lines enabled.

This is generally an indication that the initial price move in the date range you have analyzed has been detected as a likely corrective move. However, the date range did not include enough past price history to confirm that the structure of the initial wave (the move from the “zero” point) was truly an impulsive wave.

This happens when there’s not enough information as of the starting date of the automatic wave count to confirm the true beginning of the first wave in the pattern. A wave count that starts with a corrective wave is generally a warning sign, and further investigation is advised, particularly if you are not already clear about the larger pattern context.

In these cases, WaveBasis will make an educated “guess” about what kind of wave the first wave in the pattern could be – based on the rules and active guidelines. Because it’s just a calculated guess, Smart Tools and projection targets based on these waves are not displayed, and you should consider this accordingly. You can think of this as similar to looking at a chart that has important past history hidden. In this case, you might be tempted to think of a high or low turning point as significant, but you can’t be sure until you see more of the history.

So, this is often an indication that you should consider whether the starting point of your wave count is meaningful, before making any trading decisions based on the wave count. Including more past price history will tend to produce a wave count that better captures the Elliott Wave context and includes a “zero” starting point.

Learn more about choosing a meaningful wave count starting point.

 

TIP: The Wave Count Forecast gadget is a great way to learn how to read and interpret Elliott Wave counts. The gadget automatically interprets wave counts for you and provides forecasts at multiple timeframes in easy-to-understand written commentary.