The 3-Wave Trading strategy Consists of basically 3 waves. Don’t worry this is not Elliot wave Theory. I know the basic rules of Elliot Theory but the application is a bit complex on the charts. I too LIKE SIMPLE STAFF.
So for this, Simply take it as just 3 waves. Since we can make money in both bull and bear markets, we will look at identifying both the buy and sell setups. It doesn’t matter what markets you are trading. Stocks. Forex, cryptos. Indices, options, etc, the 3W setups forms on all charts on any timeframe.
We shall look at different examples on different markets and timeframes as we expand our understanding of this setup.
BUY SETUP.
1 2 3 are the Waves to look for. There must be clear space between the waves. Wave 1 and 2 form the basis for the entry trendline. This means as soon as you see wave 1 followed by another low (Wave 2), you connect the 2 lows/waves to get the support the trendline.
That’s your first part done. Now all you do is to wait for Wave 3 i.e, another touch on the trendline. A bullish candle on the trendline will confirm your BUY entry. We will discuss more on PROPER entry criteria later.
Connecting the upper part of the Waves marked a&b gives you a resistance trendline. This trendline is your target/exit zone on your buy trade. Later, we will look more into the right trendline target drawing so that the price doesn’t miss our Take Profit(TP) levels.
Now lets briefly look at a few examples of buy setups on the chart
SILVER (XAG/USD)
Clearly we can see the labelling of our Waves 1, 2 and 3. Wave 1 and 2 formal the start/initial trendline as we wait for Wave 3 to form. Formation of a bullish candle on Wave 3 as it touches our defined trendline from 1 and 2 gives us the BUY entry signal.
Trendline X,Y gives our Profit Target zone as shown above. Stop loss is set a few pips below the lowest low on Wave 3.
Lets look at a few more buy examples
3-Wave Trading Strategy Examples
US2000 Index
Just like our first example, we can see the labelling of our Waves 1, 2 and 3. Wave 1 and 2 formal the start/initial trendline as we wait for Wave 3 to form. Formation of a bullish candle on Wave 3 as it touches our defined trendline from 1 and 2 gives us the BUY entry signal.
Trendline X,Y gives our Profit Target zone as shown above. Stop loss is set a few pips below above the lowest low on Wave 3.
USDCAD Forex Pair (US Dollar/Canadian Dollar)
Quite a clean picture perfect formation!. Just like our above 2 Buy setup examples, Clearly we can see the labelling of our Waves 1, 2 and 3. Wave 1 and 2 formal the start/initial trendline as we wait for Wave 3 to form. Formation of a bullish candle on Wave 3 as it touches our defined trendline from 1 and 2 gives us the BUY entry signal.
Profit Target zone is marked by Trendline X and Y as shown above. Stop loss is set a few pips below the lowest low on Wave 3.
We already mentioned in the introduction that we shall be able to have signals in both bull and bear markets too.
So the same principle applies to the sell setups
Happy Trading!