Forecasting Swing Levels in a Trend Using Elliot WaveHere's a simple template that can help you to draw good fib extensions off different useful swings when the is a possible Elliot wave pattern.
This should help to flag up the high probability areas in a nice expression of the Elliot pattern and also give you warning levels to watch along the way in case the nice simple pattern fails.
We're going to focus on two legs. There's a few more you can draw fibs from and have useful repeating ratios but to keep it simple I'm just going to focus on the two high value ones here.
Working left to right on the chart notes:
When we know waves 4-5 we can use it for wave C
An extension fib drawn from low to high of the 4-5 swing (you'd know this was in when wave A breaks the trend) is very useful for determining the levels the market is likely to make a low and also the level which a capitulation event is likely.
The 1.61 extension is the important level here. It can hold in a simple wave 4 spike out correction. If it breaks, usually price capitulates to at least the 2.20. More commonly the 2.61 in the event we're making a low (You'll usually find this is a 76 retracement of 1-5 also).
In the first instance of a 4-5 fib, I've shown a 1.61 break. Bit of a dummy rally around the 1.61 (very common) and then the capitulation to the lower fibs. Which is more common in the first leg of a trend. Deep retracements are common in trend reversals.
When we know 1-2 we can use it for levels for wave 3
When we know where waves 1-2 should be in our count we can draw an extension fib high to low on this. We can define waves 1-2 as being in by the breaking of the first wave 5 high. It's also possible to pre-emptively draw these fibs when you think we're at the end of wave C. Obviously these need checked and adjusted if things change.
There are four main fib levels we use in this swing. 1.27, 1.61, 2.20 and 2.61.
1.27 and 1.61 levels here are expected to have pullbacks or soft stalls but ultimately break. They're levels to be careful. If it will fail these are hot spots for it, but once we have some reaction around 1.27 - 1.61 and a valid breakout we trend consistently to 2.20. That usually completes wave 3 of the trend.
From 2.20 we'll get chop and some false reversals. This is wave 4. It'll go on for a while and be full of false breakouts. Every time something looks like it's happening, it's not. Eventually there's a false bear breakout and then a big spike to the 2.61. This completes waves 4-5.
Now we're back to where we started. Once we know waves 4-5, these help with levels for C.
Since we now are inside a developing trend rather than in the first leg of it, the retracement is likely to be shallower. Stopping a little past the 1.61. With the trading under there mainly being a wick. There's a big bounce from the 1.61. A pullback (usually to the 1.27) and then there's a break of the high.
Once we have seen those legs, then we have our new 1-2 legs and we can use these to forecast where we expect the nice trending action of C. The soft resistance levels along the way that might turn the market if the Elliot thesis is incorrect and the target levels we know to look for the bigger crash correction.
For so long as the Elliot cycle plays this, these things just keep rolling into each other and you can make pretty good forecasts of the trend levels.
