Elliot AWE Pattern

The Elliott Wave Principle that states that alternate waves of similar degree are related in
geometric form. When alternate waves of similar degree reach equality, the market reaction has significant meaning for either a reversal or continuation. Naturally, we call these Alternate Wave Equality patterns Elliott AWE patterns. Given that market reversals off of Elliott AWE patterns occur at least 3-5 times daily in the S&P EMini, it pays (literally) to understand and know how to trade them.

There are some complex rules involving Elliott AWE patterns, but essentially what you need to know is that an Elliott AWE pattern is an ABCD pattern where the AB leg is equal to the CD leg. There are 4 types of Elliott AWE patterns. They are:

AWE Patterns

When evaluating Elliott AWE patterns, keep in mind that the market has already traced out the ABC points. What you are looking 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, then the market is reversing. If the pattern fails, then it is a sign that the market will continue in the direction of the CD leg. In this light, AWE Patterns can be considered a valuable ‘litmus’ test metric.

An Elliott AWE pattern whose D point terminates exactly at a Fibonacci retracement or extension is a classic example of the kind of confluence of price patterns that we look to trade. In trading such a set-up, you would place the trade as close as possible to the D point.

Of course, you shouldn’t automatically trade every Elliott AWE pattern that terminated on a Fibonacci retracement or extension; all the other signs of price-action that the market reflects should be considered as well. It may be, for instance, that you are expecting the pattern to fail which would be a sign of continuation in the direction of the failure. However, when you take a trade based on a confluence with an Elliott AWE pattern, the market will often go in your favor by a point or so even if you are wrong about the trade. Quite often this gives you an opportunity to take small partial profits and adjust the stop so that you can make money on the trade even if you are wrong. Conversely, if the market blows through an Elliott AWE pattern that terminates on a Fibonacci retracement or extension, that is a strong sign that the market will continue in the direction of the CD leg.

The WaveTracker study for eSignal automatically computes and graphically displays all Elliott AWE patterns of alternate wave equality for any time-frame chart, eliminating the guesswork and allowing you to focus on your trading.

Be sure to read Scott’s article “The AWEsome Way to Trade Elliott Waves“.