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Reading a Wave Count

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 to 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 line of a (generally higher degree) wave pattern will display as a dashed line instead of a solid line (when you hover your mouse over the wave). This happens when there’s not enough information as of the starting date of the AutoCount to confirm the true beginning of the first wave in the pattern.

In these cases, WaveBasis will make an educated “guess” about what kind of wave it could be – based on the rules and active guidelines. Because it’s just a calculated guess, projection targets based on these waves are not displayed, and you should consider it 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 past history.

 

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.

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