Objectives:
1. Understand the relationship between MFI and Elliott Wave counting;
2. Use the MACD from the Consistent Profit Method to eliminate ambiguity in Elliott Wave counting.
When analyzing Elliott Waves, the required number of bars should be at least 100 and at most 140. Under the "Plan Trading" method, we can handle almost any number of bars.
First, we will analyze the fundamental structure of each Elliott Wave. In the analysis, waves measured by MFI help apply Elliott Waves to trading.
**Elliott Waves**
The basic rhythm of Elliott Waves consists of "five impulse waves and three corrective waves." This cycle remains unchanged regardless of the wave degree being analyzed. As long as the market has the minimum necessary trading volume, this wave rhythm can be observed. The shape of the waves may extend or compress, but the basic structure remains unchanged—price moves in a five-wave sequence in the primary direction, followed by a three-wave correction in the opposite direction. Elliott labeled Waves 1 to 5 as impulse waves, with Waves 1, 3, and 5 being "motive waves." Corrective waves are labeled with letters (a, b, c, d, e; typically a, b, c, except for triangular corrections which have five waves).
**Characteristics of Each Wave:**
**Wave 1**
Wave 1 is inherently a trend-changing movement. Traders entering this new trend often adopt a "fun mode" personal psychological programming. At the start of Wave 1, the MFI indicator shows divergence. When all indicators align, we anticipate a significant upward wave from the bottom (or downward from the top). This could also be the "zero point," in which case we have even greater trading and profit opportunities.
The best method to estimate the target endpoint of Wave 1 is to analyze its internal lower-degree waves and structure. Use a smaller time frame to observe the five-wave sequence within the current Wave 1. Then, check for:
(1) Divergence;
(2) Target zones;
(3) Fractals;
(4) Dormancy windows;
(5) Changes in momentum indicators.
