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 possible.

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 Wave Equality) 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 and, 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 sell point.

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 sell point.

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 pattern.

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 Forecast

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 management.

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, profitable trader.