Implementation of THEORY 123, Elliott & WAVE Fibonacci and its weaknesses

Implementation of THEORY 123, Elliot & WAVE Fibonacci

All the theory discussed before can be applied simultaneously in suitable Time Frame. A basic principle of the actual breakout strategy is also a psychological price will move continuously if the record of high level or low manage to penetrate before it.

Strategy 1:
1. First, specified the price that already occurred with the perfect price (High & Low level) and make sure that the price is between High & Low level.

2. Place the stop BUY order on the High-level + 2xspread, and place a stop SELL order at the low level - 2xspread.

3. Place the Stop Loss order to both orders at the 50% Fibonacci level or at the high / low position.

4. If you want to use Target Points Expantion use fibonacci level as target points.

5. Move your unaffected entry to a new swing level which is perfectly formed. This is useful when the trend changed and prices turned its direction before reaching the target points.

Strategy 2: Trailing Stop
If the price has been cut through the Entry points and successfully reached the target as expected, then use trailing Stop to minimize the risk and that will secure the profit that you got.

Always use Stop Loss (SL). and move SL if the target has been reached.

Example:
C = the current price
B = Buy order entry
A = sell order entry
D = Target Prediction points

When C-D swing form move SL to form B
So your position will secure, risk = 0
When swing E-F form, move SL to E
At this position your profit is safe.
When G-H swing form move SL to G and so on

Strategy 3: Compounding Profit

Add entry point when the price has reached the target.

Example:
C = the current price
B = Buy order entry
A = Sell order entry
D = Target Prediction Points

When the C-D swing move SL to form B
So your position will secure, risk = 0
When swing E-F form move SL to E
At this position your profit is safe.
When prices is at G Buy stop order at F with SL at G
When G-H swing form move SL1 to G and so on.

Weaknesses in THEORY 123, Elliot & WAVE Fibonacci

Not a single theory is 100% perfect as all the theory discussed above. Although the above theory can predict the formation that will occur but it can not really determine the next direction of zigzag? Zigzag direction can occur both above and below.


If we see on the chart the price direction should be increased according to Elliot Wave principle but in reality even zigzag is form below it.

Other weakness that we can observe is that when the sideway movement occur. Sideway movement usually occurs after the existence of a very long swing. To figure out this matter we need to use additional indicators to see its momentum’s strength.
Example: (MACD indicator, Oscilator MA & Slow Stochastic)

After Swing AB occurred for a long time, it then followed by BC retracement and swing CD. At CD, it does not move far away from level B because of the weak momentum (MACD trend Up, Osma Up, Stochastic oversold). Then swing D-E form followed by swing EF where F is touching level D. 

According to the theory the price should continue to move down trend, but instead of turning back. This is because of the prices that are not in strong momentum (MACD trend Up, Osma Up, Stochastic oversold). According to the theory, before Swing FG form, once again the price will touch level E and the price should continue rising without turning back (MACD trend is still up, Osma start to decline, stochastic overbought).

When sideway is observe, traders should use additional indicators to make the decisions.

One of the fail Fibonacci example:

A = stop order BUY
B = stop order SELL
C = the current price
SL di 50%

In the above example the price touches the stop order Sell at D but instead of going down to F, the price rise up to E.

Move the stop order Buy to C with SL buy at 50% level of the new swing Fibo.

Price then observes to move back to F, move the stop order Buy to point E with the SL buy at 50% level of the new swing.

When the price level at E, sell orders that have been exposed to active will close after touching SL,
At this time only Buy order is active until it reaches point G. In this example you are at win-win position, mean your risk is at 0.

To overcome the weaknesses of these theories it must be supported by other indicators, support & resistance. And do not forget to add spread in your order entry.

-good luck-