You can ask any Elliott Wave analyst where
the market is headed, and you will undoubtedly get a
forecast based on counts of 5-wave impulses and
3-wave corrections, along with the current X marks
the spot, such as "We're in wave c of iv of
3." Forecasters focus on the Elliott Wave count to
predict where the market is headed.
However, the real Elliott Wave count will only be
known after it unfolds, which, more often
than not, is of little use to the trader, even if it
were correct in the first place. As traders, we
strive to find entry points in the market where
there is a high probability that the market will go
in one direction versus the other. Further, we try
to minimize our risk by finding pattern entry
points, such that the difference between our entry
point and pattern failure point is as small as
Does this mean that the Elliott Wave Principle is
of no practical use to traders? Quite the contrary.
The Elliott Wave Principle is of paramount
importance to traders...that is, if you use it as a
trader and not as a forecaster .
The Elliott AWE Pattern
A much-overlooked key component of the Elliott
Wave Principle is that alternate waves relate in
geometric form. Alternate waves relating in
geometric form give rise to market structure based
on the simple relationship of equality.
When alternate waves reach equality (the AB leg =
the CD leg), the market has traced what we call an
Elliott AWE (Alternate
pattern. The key for traders is that Elliott AWE
patterns repeat constantly in high volume markets at
all degrees of trend. The four types of Elliott
AWE patterns are shown in Figure 1 .
Impulsive Bullish AWE Corrective Bullish AWE
Impulsive Bearish AWE Corrective Bearish AWE
In using Elliott AWE patterns, the market has
already traced the ABC points. What you look for is
what happens if and when the market gets to the D
point. If the market reaches the D point, and the
AWE pattern holds, the market is reversing.
If the pattern fails, it is a sign that the
market will continue in the direction of the CD leg.
We use WaveTracker tm, an eSignal Formula Script
(EFS) study developed by
NaturesForceTrading.com, to automate the process
of identifying Elliott Wave AWE patterns. Each of
the patterns in the subsequent examples was
identified well in advance by WaveTracker.
At Tic2Tic, we prefer to trade the S&P E-Mini
because Elliott AWE patterns repeat in that market
with a high degree of precision. Figure 2 shows an
example of a Corrective Bearish Elliott AWE pattern
on a 30-minute chart of the S&P E-Mini.
Notice that the AB leg is exactly equal (to the
tic) to the BC leg at +12.00 points. This example
also shows the importance of the evening session
because the “A” point of the AWE pattern (1179.25)
occurred on Globex at 1:30 a.m. ET on November 26,
2004. Traders who were paying attention only to the
day session would have missed that pattern point.
In Figure 2, at the instant 1172.25
held, WaveTracker identified 1184.25 as a potential
sell point and gave you 3 hours for
further analysis. Based on price-action, there were
several additional reasons why 1184.25 was a sell
point. WaveTracker assists you in identifying such
confluences, where the trade has a high probability
of success with minimal risk of 6 ticks or less.
Elliott AWE patterns give rise to our company
name, Tic2Tic, in that, quite often, you can use
Elliott AWE patterns to place trades from an exact
high to an exact low. Witness what happened on
October 13, 2004.
Figure 3 shows that the market opened and traded
up right into the “D” point of a Corrective Bearish
Elliott AWE pattern at 1127.25 (the AB and CD legs,
+11.50 points, were equal within 1 tick). That was a
Figure 4 shows that the market traded down 17.75
points to 1109.50, unfolding as an Impulsive Bearish
Elliott AWE pattern, where the AB and CD legs were
exactly equal at 10.25. Further, you can see that
the C point (1119.75) terminated at a “D” point of
an Elliott AWE pattern of lesser degree (AB = CD
within a tick at +2.50 points). That was also a
The Proof Is in the Market
If this is your first exposure to the Elliott AWE
pattern, you might be skeptical, thinking that the
previous examples are isolated occurrences. However,
tradable Elliott AWE patterns occur every single
day. The proof is in the market. The market is never
wrong; it just is what it is; and when the market
repeats these patterns every single day, the
proof is undeniable.
Elliott AWE Patterns = The Holy Grail?
So, are Elliott AWE Patterns the Holy Grail?
No, Elliott AWE patterns are simply
the key component of market structure, and market
structure is a key component of price-action in
markets. Elliott AWE patterns occur constantly
throughout the trading day. Half the time they fail
and half the time they do not.
Failure of an Elliott AWE pattern has
significance for continuation in the direction of
the failure. The real question for the trader is,
“Which Elliott AWE patterns are high probability
candidates for placing a trade with a low risk of
pattern failure?” The answer lies in a thorough
understanding of the other components of
price-action that coincide with the Elliott AWE
When one or two of the stars of price-action are
aligned with an Elliott AWE pattern, probabilities
are in your favor. If you are prepared and on time,
you can place the trade with a tight stop. Our stops
in the S&P E-Mini are seldom more than 6 ticks. If
you are wrong, you do not get hurt. If you are
right, well, just look at the previous charts, and
you can see the risk / reward ratio.
Elliott AWE Patterns: How to Trade, not
Elliott Wave analysts rely on wave counts to
forecast where the market is headed. Successful
traders do not forecast; they trade. Successful
traders have an edge in the markets, and they think
in probabilities. There is only one Holy Grail in
trading and that is to find an edge in the markets
and learn to trade it consistently with proper money
Elliott AWE patterns, combined with reading other
components of price action, give you an edge in the
markets. Time and space do not permit a full
explanation of the other key components of price
action that can coincide with Elliott AWE patterns.
If you can learn to think in probabilities and
consistently trade an edge with the discipline of
tight stops and proper money management, you are
well on your way to becoming a consistent,