TA Notes


Pivot points, market structure & the three phases of major trends

Dow Theory — Foundation

Charles Dow is the grandfather of technical analysis. He co-founded the Dow Jones Industrial Average (1896, still running today) and the Wall Street Journal. His work was done without computers — all manually charted with pencil and paper.

The other three TA Titans built on Dow's work:

The 6 Tenets of Dow Theory

Each tenet is covered in depth throughout the course. Summary:

  1. The averages discount everything — all available information (economic, political, market) is already reflected in price. "Buy the rumour, sell the news" — if you're hearing about it, professionals already knew
  2. The market has three trends — Primary (long-term), Secondary (medium-term), Minor (short-term). A common mistake: wanting to invest long-term but taking entries on minor short-term moves
  3. Primary trends have three phases — Accumulation, Public Participation, Excess/Distribution (this week's focus)
  4. A trend persists until its reversal is indicated — like Newton's first law: a trend stays in motion until acted upon. There are only three ways a trend can reverse (covered in Week 3)
  5. The averages must confirm one another — a trend needs confirmation from multiple sources, just like you'd research a major purchase from multiple angles, not just one data point
  6. Volume must confirm the trend — volume should rise with the trend. Big money can mask price action but they can't mask volume — you can't hide how many units were bought or sold

The Three Phases of a Primary Trend

A bull market is broken into three phases: Accumulation → Public Participation → Excess. Then it reverses through: Distribution → Public selling → Panic. Then it resets.

Three phases diagram

Phase 1: Accumulation

The Spring / Liquidity Grab: During accumulation, big money often pushes price below the bottom of the range before sending it up. Why? Anyone who bought support had stop losses just underneath — big money grabs that liquidity, shakes people out, then sends it. If something breaks out of a major sideways range to the downside and pops straight back in — that's actually a sign of strength (a "spring"). The opposite applies to distribution: a pop above the range that falls back in is a sign of weakness.

Phase 2: Public Participation

Phase 3: Excess

The Sentiment Cycle

The emotional progression through the phases:

Bull market (going up): Disdain → Skepticism ("just a dead cat bounce") → Caution → Growing confidence → Conviction → Peak Greed/Euphoria

Bear market (coming down): Hope ("just another zig-zag") → Worry → Fear ("what have I done") → Disgust → Disdain

Peak fear at the bottom. Peak greed at the top. Every time.

Corrections Between Phases (Craig's Key Rule)

This is why getting caught buying in the excess phase is so dangerous — you're not just giving back the excess gains, you're giving back everything. It can take 6-13 years to recover.

Phases Within Phases (Fractal Nature)

Each major phase contains its own sub-phases of accumulation, public participation, and excess. The more you zoom in, the more sub-phases you see. This concept is the foundation of Elliott Wave Theory (Term 3).

Example: The S&P 500 since 2009 has a big accumulation, big public participation, and big excess phase. But within the big public participation, there were smaller accumulation, public, and excess sub-phases.

Commodity vs Equity Phase Differences

Examples

Pivot Points

If you cannot identify pivot points, you cannot identify market structure. If you cannot identify market structure, you cannot identify a trend. This is the literal backbone of technical analysis.

How to Identify Pivot Points

  1. Look for 3 candles moving in the opposite direction — this is not a textbook rule, it's a beginner-friendly method to stop you getting faked out on tiny moves. ~90-95% of pivot points will follow this rule
  2. They don't have to be 3 red or 3 green candles — they can be a mix of colours. You're looking for the overall direction changing (3 candles moving the opposite way to the primary move)
  3. Exceptions: During elevated market volatility, 1-2 very large candles can count as a pivot (e.g. a big bullish engulfing candle on its own)
  4. Craig's clarification: The 3-candle rule is a guide to prevent you marking 100 tiny pivots that add no value. What you're really looking for is significant peaks and significant troughs. If it's just undulating noise, you probably don't need a pivot there

Pivot Point Shapes

Pivot point shapes

Swing Highs and Swing Lows

Pivot points are also called swing points:

Practical Tips for Marking Pivots

The 3 Types of Market Structure

There are only 3 things a market can do: go up, go down, or go sideways. The first thing you should do when pulling up any chart is identify pivot points, then identify market structure.

"Market structure is king" — when you go against market structure, that's when you lose.

Market structure types overview

Bullish (HH / HL)

Bullish market structure

Consolidation (EH / EL)

Consolidation market structure

Bearish (LL / LH)

Market Structure Change Confirmation

You need BOTH to confirm a change:

Connecting Pivots

Draw a line connecting your pivot points to visually see the trend direction. This makes it obvious when you transition from uptrend → sideways → downtrend.

Transition Through Phases Using Market Structure

Markets transition: Uptrend (HH/HL) → Sideways (EH/EL) → Downtrend (LL/LH) and vice versa. The phases map directly: Accumulation = sideways (EH/EL), Public Participation = uptrend (HH/HL), Excess = potentially still making highs but with warning signs, Distribution = begins transition to LL/LH.

Supply & Demand, and Support & Resistance

Dow Theory Tenet 2: The Market Has Three Trends

The market moves in three distinct types of trend, each operating on a different timeframe. Understanding which trend you're looking at is critical — your timeframe must match your investment/trading goals.

Primary Trend (The Tide)

Secondary Trend (The Waves)

Minor Trend (The Ripples)

How They Interact

The zig is the primary trend direction. The zag is the secondary correction. Within both, the minor trend creates the day-to-day ripples. When investing, you care about the primary. When trading, you're navigating the secondary and minor within the context of the primary.

Support & Resistance — Psychology

Support and resistance are fundamental concepts tied to the principles of supply and demand. They represent the battlegrounds where supply and demand forces collide.

Psychological Impact

Support Resistance
Price points where buyers typically step in, perceiving the asset as undervalued Psychological barriers where sellers see the asset as overvalued
Traders associate these levels with safety nets, triggering buying pressure Leads to increased selling pressure — hesitation, shorting, or profit-taking

Breakouts and Failures

When support or resistance levels are breached, they signal shifts in sentiment — either stronger conviction (breakout) or panic selling (breakdown), leading to rapid price changes. Recognising these psychological shifts helps anticipate market moves.

Supply & Demand

Financial markets work exactly the same as any marketplace — it's all supply and demand. Think of it like a flea market, or bartering in Bali. Prices move based on the balance between willing buyers and willing sellers.

Key principle: For every buyer, there is a seller. For every seller, there is a buyer. It doesn't just magically go somewhere — when you're selling, someone else is buying because they think it's a good deal.

Demand Zones

Supply Zones

Everything Has a Price

Even the worst-performing assets eventually reach a price where someone thinks it's cheap and demand steps in. Examples:

Support (Demand)

Support is a price level where an asset usually stops falling and starts to see more buying. It marks a point where the balance between supply and demand shifts in favour of demand.

Key Concept: Support is a ZONE, Not a Line

Never draw support as a single line — it doesn't work. Support is always a zone (a range) where historical buying interest has caused price reversals. Buyers don't step in at one exact price — they step in around an area.

Example: Buyers might step in at $208, $209, $212, $214, $211 — that's all a zone around $208-$214, not a precise price point.

Visualising Support

Think of it literally as people standing at different price levels willing to buy:

The gaps between clusters of buyers are where price moves fast — when support breaks, it falls to the next level where people are willing to buy.

How to Draw Support Zones

  1. Find your pivot points where buyers have stepped in (swing lows)
  2. Look for multiple pivot lows clustered around a similar horizontal area (like "dot to dot")
  3. Use the rectangle tool in TradingView (5th icon down → click arrow → Rectangle)
  4. Draw the rectangle encompassing as many of those candlestick wicks as possible
  5. Change the colour to green (Settings → Border → green, Background → green, lower transparency so candles are still visible)
  6. Add text label "Support" for quick identification

Support Key Points

Resistance (Supply)

Resistance is a price level where an asset tends to stop rising due to selling pressure. It represents areas of supply where sellers are willing to exit.

Key Concept: Resistance is Also a ZONE

Same as support — resistance is always a zone, not a single line. Sellers step in around an area, not at one exact price.

Example: Sellers might step in at $228, $230, $232, $234 — that's all a zone around $230, not a precise price.

How to Draw Resistance Zones

  1. Find your pivot points where sellers have stepped in (swing highs)
  2. Look for multiple pivot highs clustered around a similar horizontal area
  3. Use the rectangle tool, encompassing as many candlestick highs/wicks as possible
  4. Change colour to red (Border → red, Background → red, lower transparency)
  5. Add text label "Resistance"

The Battle Between Bulls and Bears

Once you have support (green) and resistance (red) drawn, you can see the battle. Eventually one side wins:

Resistance/Support Flip (Role Reversal)

"If you can master this strategy, you can honestly make money on the market." — ASX Trader

A resistance/support flip occurs when a former resistance level becomes a new support level (or vice versa). This is one of the most powerful concepts in technical analysis.

How It Works

  1. Price approaches resistance repeatedly — sellers step in each time
  2. Eventually, sellers get exhausted — no more sellers left at that price
  3. Price breaks through resistance (breakout)
  4. Price comes back to test that old resistance level
  5. Those sellers have now become buyers — old resistance is now support
  6. The flip is confirmed

What It Signals (Two Buy Signals)

  1. Sellers are exhausted — they're no longer stepping in at that price
  2. Sellers have become buyers — the level that was previously seen as overvalued is now seen as undervalued

The Fake-Out Warning

If price breaks out of resistance but immediately pops back within the zone, that's a sign of weakness (fake-out), not a genuine breakout. The opposite also applies — breaking below support and popping straight back in is a sign of strength (this links to the "spring" concept from Week 1).

CBA Example — The Staircase

Commonwealth Bank's entire existence is essentially a series of resistance/support flips — climbing steps:

Trading Strategies Using Support & Resistance

1. Breakout Strategy

Objective: Profit from significant price movements following a breakout of support or resistance.

2. Pullback/Retest Strategy (Resistance/Support Flip)

Objective: Enter trades when price retraces to a support/resistance level after a breakout.

3. Range Trading Strategy

Objective: Profit from price fluctuations within a defined sideways range.

1.3 - Reversal patterns, trend lines & channels

Dow Theory Tenet 4: The Trend Is Your Friend

A trend will persist until its reversal is indicated. Like Newton's first law — an object in motion stays in motion unless acted upon by an external force. A market trend stays in motion until external factors cause a shift (fundamental news, economic data, or exhaustion in buying/selling pressure).

Why Trend Recognition Matters

The Three Reversal Patterns

There are ONLY three ways a trend can reverse. Every reversal pattern you'll ever see fits under one of these three. That "cheat sheet with 50 different reversal patterns"? They're all just versions of these three.

Three reversal patterns overview

1. Double Top / Double Bottom

Double top diagram

The most common reversal pattern. Often called the "M pattern" (tops) or "W pattern" (bottoms). You can make money literally just trading these — they're textbook and easy to identify.

Double Top formation:

  1. Price reaches a peak (point 1), retraces to a low (point 2)
  2. Rallies back up but fails to exceed the previous high — selling equal (point 3). First warning sign: "Why are they selling at the same price? Every previous time they sold higher"
  3. Declines and breaks below the support at point 2 (the "neckline"). First sell signal: sellers won. Buyers who stepped in at point 2 are no longer there
  4. Often retests the neckline as resistance (support/resistance flip) — because anyone who bought the dips now wants out if it gets back to their buy price
  5. Confirmation: when price breaks point 6 (below the retest low) = lower low, lower high, lower low = change of market structure

The psychology:

Measured target: Distance from the double top to the neckline, projected downward from the neckline breakout point. That's your approximate target for the move.

Negation: If price gets back above the neckline, the double top is over — no longer expecting lower moves.

Double Bottom is the exact opposite. W-shaped. When you get big double bottoms over a large timeframe, they're textbook accumulation zones. Examples: FMG post-GFC ($1 double bottom), Apple ($13 double bottom), Cardano ($0.02 double bottom), Ethereum 2018-2020 double bottom.

For confirmation purposes, treat a double bottom exactly like a failure swing — the high between the two lows is the neckline, and confirmation is when you close above it.

2. Non-Failure Swing (STRONGEST Reversal)

Non-failure swing diagram

The most powerful reversal because you're not only breaking prior pivots but also getting a confirmed lower low, lower high, lower low (change of market structure).

Non-failure swing top:

  1. HH, HL, HH, HL pattern — uptrend proceeding normally
  2. Price makes a new high (point 5) — still going higher, all good
  3. Then drops below the previous higher low (point 4) — penetrates prior pivot. First warning sign
  4. This is where "buy the dip" gets dangerous — people keep buying the dip because it worked every other time. But when you can read market structure, you realise this is NOT the time to buy the dip. This is when big money distributes INTO the dip
  5. Rally back up but now forming a lower high (point 7) — second warning sign. "Why are they selling at $59K when every other time they sold at $64K, $61K?"
  6. Breaks below the prior low — confirmation. "This should be an absolute bargain. Why aren't they buying again?"

Two sell signals:

Why it's the strongest: Unlike the failure swing, a non-failure swing breaks through prior pivots AND gives you the full LL/LH/LL confirmation. The psychology flip is complete — people who were "buying the dip" every time are now watching it power straight through their buy levels.

Example: Bitcoin at $64K top and $30K bottom were both non-failure swings.

3. Failure Swing (LEAST Reliable)

Failure swing diagram

How to identify (in a downtrend): The first sign is it fails to make a new low. Instead of continuing lower, it puts in a higher low. Then takes out the previous high.

How to identify (in an uptrend): The first sign is it fails to make a new high. Price makes a lower high, then breaks below the previous low.

Why it's called "failure" swing: Because the dominant trend failed to continue — it failed to make a new low (in a downtrend) or new high (in an uptrend).

Why it's the least reliable: It can just be an ABC correction (3 steps forward, 2 steps back). The market might bottom shortly after the failure swing exit and then continue the original trend. More depth on this comes with Fibonacci and zig-zag zones later in the course.

A head & shoulders pattern is just a version of a failure swing. Shoulder, head, other shoulder — it's the same structure.

Craig's Key Confirmation Rules (Apply to ALL Three)

The critical thing that's the same across all three reversal patterns:

The Non-Failure vs Failure Naming (Craig's Simple Explanation)

In a downtrend:

In both cases, the final confirmation step is the same: close above the previous high.

Trend Lines

Trend lines use the same concepts as horizontal support/resistance (above = resistance, below = support) but at an angle.

How to Draw a Bullish Trend Line

  1. Find the lowest point of the price
  2. Find the next 1-2 higher lows and connect a line across those points
  3. Draw the trend line below the price (it acts as support — the floor)
  4. Can include a mix of candle bodies or wicks — context is key
  5. Two points to draw, three points to confirm. The third touch validates the trend

How to Draw a Bearish Trend Line

  1. Find the highest point of the price
  2. Find the next 1-2 lower highs and connect a line across those points
  3. Draw the trend line above the price (it acts as resistance — the ceiling)
  4. Try to encompass as many touches as possible — the more data confirming the line, the stronger it is

Key Principles

Dow Theory states that the only valid trend lines are horizontal — because angled trend lines are subjective (open to interpretation depending on how you draw them). You can draw two completely different trend lines on the same chart and both could be "right."

Don't get caught up on exactly how the trend line is drawn. They're a signal, not gospel. What you're looking for is when the trend may be about to change. The confirmation is always the change of market structure (HH/HL or LL/LH), not the trend line break itself.

Trend line breakout + retest as support = same concept as horizontal S/R flips. Very common for broken trend lines to get retested.

Advanced Trend Lines

Acceleration & Deceleration (Angular Momentum):

Measured Target for Trend Line Breakouts: Take the maximum distance price has moved away from the trend line, and project that same distance from the breakout point. That's your minimum price target.

Hot tip: The easier it is and the more people that can spot the trend, the closer you are to it ending. When every man and his dog can see it, it probably won't hold.

Channels

A channel is a set of parallel trend lines (like train tracks) defined by the highs and lows of price action. They present great trading opportunities and help with risk management.

Three Types

How to Draw Channels

  1. In TradingView: left toolbar → Trend line → arrow → Parallel Channel
  2. Find the lowest point (for ascending) or highest point (for descending)
  3. Draw along the support touches, then drag up/down to encompass resistance touches
  4. Try to get as many touches on both lines as possible

The Midline

The dotted midline of a channel often acts as its own support/resistance level. Price frequently bounces off or rejects from the midline — the "return to mean."

Channel Validity

Channel Exhaustion

If price fails to reach the upper line of an ascending channel, that's an early warning of trend exhaustion. The breach of the lower support line becomes more likely after a failure to reach the top.

S&P 500 100-Year Channel Example

Drawing a channel from the top of the Great Depression through the tech bubble on a 3-monthly chart shows that historically, when the S&P hits the upper channel resistance, it corrects back to at least the midline (dotted line). If things get really bad and oversold, it can come all the way back to the bottom channel line. This gives context for when things are at resistance, around the mean, or extremely undervalued.

1.4 - Volume analysis, Wyckoff techniques & On-balance Volume

Dow Theory Tenet 6: Volume Must Confirm the Trend

Volume is just the total number of shares/coins that changed hands in a period. Nothing more. It has nothing to do with price directly — it's simply how many units were traded. Think of volume as the fuel for the market — running on low fuel, it won't go far. Full tank, it'll keep going.

If volume is increasing along with the price trend, it suggests smart money is buying into the trend. Smart money owns billions and generates the majority of volume. If volume doesn't confirm the move, it's likely dumb money (untrained retail traders) moving the price.

The Four Price-Volume Relationships

Price volume relationship

Price Volume Signal Meaning
Rising ↑ Rising ↑ Bullish — good for longs Uptrend supported by volume. Stay in longs
Rising ↑ Falling ↓ Bearish — look to exit Uptrend NOT supported by volume. Look to exit on further signs of reversal
Falling ↓ Rising ↑ Bearish — good for shorts Downtrend supported by volume. Exit longs or look for shorts
Falling ↓ Falling ↓ Bullish — likely a pullback Downtrend NOT supported. Probably just a correction/zag, not a new trend

The biggest misconception: People think rising volume = good, falling volume = bad. Wrong. Rising volume just means the current trend is supported. If the trend is DOWN and volume is rising, that's confirming the downtrend — lots of people are still selling.

Key connection to Dow Theory: The secondary action (1/3-2/3 retracement) should happen on decreasing volume because it's a corrective move, not a new trend. Volume should support the primary trend, not the secondary correction.

Volume at Breakouts: Fake Out vs Breakout

Price volume chart

Volume at Support & Resistance

When there's high trading activity at support/resistance levels, those levels are more reliable — lots of investors treating them as buy/sell points means they'll likely continue to do so. High volume at support = probably going to hold. High volume at resistance = probably going to reject.

High Volume Spikes

High volume spikes tend to happen at extreme tops and extreme bottoms — that's where the most buyers and sellers are active:

Wyckoff's Third Law: Effort vs Result

Richard Wyckoff (1873-1934), one of the TA Titans, developed a key principle about the relationship between volume (effort) and price movement (result).

Price-Volume Convergence (Effort = Result)

Volume convergence

When both price and volume move in the same direction, market participants are in agreement. Large body candles + large volume = convergence. The current trend is likely to continue.

Gym analogy: If you go to the gym every day for 3 months (big effort), you should see your body change (big result). That's convergence — effort matches result.

Price-Volume Divergence (Effort ≠ Result)

Volume divergence

Small candle body + high volume = potential shift in market sentiment. The market required a lot of effort but barely moved — something is wrong. High volume doji candles are classic divergence signals and often precede reversals.

Gym analogy: If you go to the gym every day for 3 months (big effort) and look in the mirror and nothing's changed (no result) — something's up.

On-Balance Volume (OBV)

Created by Joseph Granville in 1963. His theory: changes in volume precede price movements. OBV is a leading indicator — it changes direction before price does.

How to Add OBV in TradingView

Indicators → search "OBV" → On Balance Volume → add. The blue line appears below the chart. Double-click anywhere blank on the chart to hide/show it quickly.

How OBV Works

OBV is a cumulative running total of volume — adding volume on up days, subtracting on down days:

The King & Queen Rule (CRITICAL)

"Price action is king. OBV is the queen. Listen to the king first, then see if the queen supports what the king is saying. Do NOT listen to the queen first."

Follow your price action first — market structure, reversal patterns, everything you've learned. Once you identify a setup, THEN check if OBV supports it. Do NOT look at OBV first and try to make the price action fit. You will get wrecked doing it backwards.

Detox your charts: Remove all indicators. Analyse price action clean. Only then add OBV to confirm. The price action is primary data, OBV is secondary.

The Five OBV Scenarios

1. Bullish Divergence Breakout: OBV reaches a new high while price approaches resistance → predicts price will break through resistance and head higher. OBV is leading — it's already broken out before price has.

2. Bearish Divergence Breakout: OBV hits a new low while price tests support → predicts price will break support and head lower. OBV already broke support before price did.

3. Bearish Divergence Reversal: Price rises to a new high while OBV hovers at or below the previous resistance level → predicts the rally will stall or reverse. Volume is NOT confirming the new highs. If price keeps making new highs but OBV keeps hitting a wall — that's bearish divergence.

4. Bullish Divergence Reversal: Price hits a new low while OBV stalls at or above the last support level → predicts the sell-off will stall or reverse. Price made a new low but volume didn't — something different, bullish divergence.

5. Convergence (Bullish or Bearish): OBV matches price action — when price goes up, OBV goes up; when price goes down, OBV goes down. This confirms the current trend is valid.

The Simple 95% Use Case

Most people (and this is perfectly valid) use OBV for one thing: does the OBV line do the same thing as price? When price makes HH/HL, does OBV also make HH/HL? If yes, volume confirms the move. If not, something's different. That alone is quite powerful as a confirmation tool.

Advanced OBV Strategies

Drawing TA on OBV

Everything you've learned from price action — support, resistance, trend lines, market structure — can be applied directly to the OBV line:

OBV as Leading Indicator (Key Examples)

ASX Trader's Bitcoin call at $65K top: OBV broke its uptrend line while price was still making new highs. OBV had bearish divergence + trend break = exit signal. Price didn't actually break its trend until much lower (~$51K). OBV led the way.

Getting back in at the bottom: OBV broke its downtrend line and showed bullish divergence before price broke out. Combine downtrend break on OBV + bullish divergence = entry signal.

Avoiding Fake Rallies with OBV

When you see a rally and think it's a breakout — check if OBV has also broken its downtrend line. If OBV hasn't broken its decline, the rally is likely a fake. This stops you entering fake rallies. Match the actual breakout point on OBV (using a vertical line) with where price breaks out — they should align at the genuine breakout, not the fake ones.

Note: Fibonacci Clusters

The Fibonacci clusters lesson was included in this week's content but relates more to the Fibonacci & Retracement Zones topic. Key concept: overlay Fibonacci retracements from multiple timeframes (e.g. daily retracement + monthly retracement) to find "cluster zones" where multiple Fib levels overlap — these are stronger support/resistance zones than a single Fib level alone. Example: Microsoft's 618 from the COVID bottom overlapping with the 382 from the entire move created a powerful cluster support zone.

1.5 - RSI Divergence as a leading Indicator

What Is RSI?

The Relative Strength Index is a price momentum indicator — it measures price momentum only, nothing to do with volume. RSI is bounded between 0 and 100, like an elastic band that gets stretched between extremes and always snaps back.

RSI chart

Overbought & Oversold

Critical rule: Just because it's overbought doesn't mean it can't go higher. Just because it's oversold doesn't mean it can't go lower. Some of the BIGGEST moves happen when RSI is overbought or oversold. Don't sell just because it's overbought or buy just because it's oversold — that's using RSI as a lagging indicator and will get you wrecked.

RSI Reset Timing by Timeframe

How to Add RSI in TradingView

Indicators → search "RSI" → Relative Strength Index → add. Appears as a bounded chart below the price chart.

What Is Divergence?

Divergence is when price and the indicator (RSI) are going in opposite directions. It warns that the current price trend may be weakening and in some cases may lead to a reversal.

The running analogy: When you go for a run, at first you have all the energy and momentum. Over time, your body starts giving you signals — puffing, sweating, needing water — that you're weakening. Eventually you'll need to stop. The market works the same way. A trend is running strong, then RSI starts giving signals that momentum is fading. It doesn't mean the trend stops immediately, but it's warning you.

Using RSI for Divergence = Leading Indicator

If you use RSI for overbought/oversold, it's a lagging indicator (telling you what already happened). If you use RSI for divergence, it becomes a leading indicator — signalling what's likely to happen in the future. Every indicator the educator teaches is a leading indicator, because you can't make money on the past.

Divergence Can Mean Two Things

  1. Reversal — the trend actually reverses
  2. Range/Consolidation — price goes sideways to "chill" before continuing

Divergence does NOT always mean a reversal. It signals that something is changing, and the trend may consolidate OR reverse.

Two Types of Regular Divergence

Bullish Divergence Bearish Divergence
Price Makes a lower low Makes a higher high
RSI Makes a higher low Makes a lower high
Meaning Downtrend momentum weakening — potential reversal upward Uptrend momentum weakening — potential reversal downward
Where found Only at bottoms (in downtrends) Only at tops (in uptrends)

Bullish divergence Bearish divergence

You can only look for bullish divergence in a downtrend (because you're looking for the bottom). You can only look for bearish divergence in an uptrend (because you're looking for the top). You can't find bearish divergence in a downtrend — it doesn't exist there.

Divergence Strength

There are three strengths of divergence — strong, medium, and weak. Strong divergences most often lead to major reversals. Weak divergences usually just produce a bounce.

Strong Divergence

Medium Divergence

Weak Divergence

Steps to Find and Confirm Divergence

Step 1: Identify the Swing Points

Connect two low points on price (A and B). Then find the corresponding two swing lows on RSI. Are they going the same direction or opposite? If opposite = divergence.

Use the vertical line tool to match price pivots with RSI pivots — ensures you're looking at the right corresponding points.

Step 2: Assess Divergence Strength

Is it strong (lower low / higher low), medium (equal low / higher low), or weak (lower low / equal low)?

Step 3: Wait for Confirmation — DON'T Trade the Signal

Divergence alone is NOT an entry signal. It's an early warning. You need price action confirmation:

Step 4: Trade the TRIGGER, Not the Signal

The blinker analogy: Divergence is like a car's indicator/blinker. It signals the car is going to turn. But if you drove based on blinkers alone, you'd have an accident within a week — people put blinkers on wrong, too early, or not at all. Same with divergence. Sometimes the first divergence leads to a reversal. Sometimes it's the second, third, or fourth. You wait for the car to actually turn (change of market structure) before you act.

Signal = divergence. Trigger = change of market structure / reversal pattern / breakout. We trade triggers, not signals.

Do's and Don'ts for Drawing Divergence

Do's

Don'ts

Combining RSI with OBV

RSI measures price momentum. OBV measures volume momentum. These are different things, so using both is valid (unlike RSI + MACD which are both price momentum).

The ideal setup: RSI divergence confirmed by OBV divergence = two different signals both pointing the same direction. Enter on the change of market structure, hold until you get the opposite signal from either RSI or OBV.

This is what confluency means — multiple independent signals all telling you the same thing. The more confluency, the higher probability the trade works.

Craig's Key Insight: News Creates Catalysts for Moves That Were Already Due

The S&P 500 showed significant bearish divergence on the weekly timeframe before both the Trump tariff sell-off and COVID. The divergence was already signalling weakness — the news event just created the catalyst that expedited the pullback. "We were always going to pull back. The catalyst of the news made it happen much quicker."

This is why divergence is so powerful as a leading indicator — it shows you the setup before the trigger event occurs. By the time the news hits, the weakness was already there for weeks or months.

1.6 - Fibonacci & retracement zones

Understanding Fibonacci

The Fibonacci sequence — 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89… — is a series where each number is found by adding the two before it. Identified in the 13th century by Leonardo Fibonacci, though the sequence was known and used hundreds of years before (even in Egyptian architecture).

The Golden Ratio

The golden ratio 0.618 (or its inverse 1.618) is derived from the Fibonacci sequence and appears throughout nature — from atoms to galaxies, honeybee populations (female/male ratio = 1.618), sunflower spiral rotations, and even human body proportions (shoulder to fingertips ÷ elbow to fingertips ≈ 1.618). It's been used for centuries in art (Mona Lisa), architecture (pyramids), and design (Twitter logo).

The Fibonacci Levels

Dividing a number by the next in the sequence gives the key ratios:

The key retracement levels: 0%, 23.6%, 38.2%, 50%, 61.8%, 78.6%, 100%

Note: The 50% level is NOT actually a Fibonacci number. It's included because of Dow and Gann theory — and human psychology. If you see a "50% off" sale, you automatically gravitate towards it. Financial markets work the same — when something is half price, people perceive it as a bargain.

Fibonacci Retracement Strength — The "Discount" Framework

Each Fib level tells you something about the strength of the underlying trend. Think of it as a sale:

Fib Level Discount Trend Strength Meaning
23.6% ~24% off Very strong Buyers jumping in at a tiny discount — massive demand
38.2% ~38% off Strong Buyers stepping in at a modest discount — still strong demand
50.0% 50% off Normal Human psychology — half price attracts buyers naturally
61.8% ~62% off Weak Buyers waiting for a big discount before stepping in
78.6% ~79% off Very weak Needs to be nearly 80% off before anyone's interested
Below 100% Full retrace Reversal No discount is enough — trend is over

The key insight: If successive retracements go deeper and deeper (38.2 → 50 → 61.8 → break), the trend is weakening. Each time, buyers need a bigger discount before stepping in. When even an 80% sale won't attract buyers, the trend is done. This is how you can use Fibonacci to see a trend weakening before it fully reverses.

Example: Bitcoin showed successive retracements getting deeper — 382, then 500, then 618, then broke entirely. The trend was weakening with each leg, and Fibonacci showed it clearly.

How to Draw Fibonacci Retracement

In TradingView: Left toolbar → 2nd group down → arrow → Fib Retracement (or Alt+F shortcut).

In an Uptrend (Looking for Support)

  1. Identify market structure is bullish (HH/HL)
  2. Find the major swing low and major swing high
  3. Click from the low (100%) to the high (0%) — wick to wick
  4. The levels show where you can expect support on the pullback (23.6, 38.2, 50, 61.8, 78.6)

In a Downtrend (Looking for Resistance / Profit Targets)

  1. Identify market structure is bearish (LL/LH)
  2. Find the major swing high and major swing low
  3. Click from the high to the low
  4. The levels show where you can expect resistance on the bounce (where to take profit)

Critical Rule: Draw Wick to Wick

Always draw from the wick of the low to the wick of the high (or vice versa). Not candle bodies.

The Golden Pocket — The Zag Zone

The 382-618 zone is called the "golden pocket" or the "zag zone." This ties directly back to Dow Theory: the secondary action is a 1/3 to 2/3 retracement of the primary move. The Fibonacci 382-618 range IS that 1/3-2/3 zone.

Nine times out of ten, the zag will come down to the golden pocket.

Every zag (correction) in a trend should retrace back to somewhere in the 382-618 zone. This is where you look for:

Using the Zag Zone for Profit Taking

The zag zone isn't just for entries — it's essential for exits. In a downtrend, when price bounces, expect the bounce to reach the 382-618 zone of the prior down move. That's where you take profit or look for weakness, because the bounce may just be a zag before more downside.

Only two things can happen at the zag zone:

  1. It's just a zag (correction) and the prior trend resumes → price rejects at 382-618
  2. It's the beginning of a new trend → price pushes through the 618 on increasing volume

If price gets above the 618 on strong volume, it becomes more likely the bottom is in and a new bull market is starting. Until then, treat every move into the zag zone as potentially just a correction.

The Forecasting Process

  1. Identify your zone — draw Fib from the move, mark the 382-618 zag zone
  2. Watch for weakness when price reaches the zone — bearish divergence on RSI and OBV, declining volume, reversal candlestick patterns
  3. Wait for confirmation — change of market structure (reversal pattern) at the zone
  4. React — take profit, exit, or enter based on the confirmed setup

Zag zone diagram

If price retests the zag zone, drops out, then retests the bottom of the zone again — that's usually a sign the price will continue to fall away.

The Bread and Butter Setup — Combining Everything

ASX Trader's process for entries:

  1. Price moves into a Fibonacci support level (382, 500, or 618)
  2. The move into the level happens on lowering volume
  3. Bullish divergence appears on OBV
  4. Bullish divergence appears on RSI
  5. A change of market structure confirms the reversal (double bottom, failure swing, or non-failure swing)

That's the complete setup — Fibonacci level + weakening volume + OBV divergence + RSI divergence + reversal confirmation. Don't just buy because it's on a Fib level. Combine everything from the prior five weeks.

How Markets Move: Zigs, Zags & Three Steps Forward

The Zig-Zag Pattern

Markets never move in straight lines. They zig (move in the trend direction) and zag (retrace). The zag comes back to the golden pocket (382-618) before the next zig.

Apple example: From the tech bubble bottom in 2003, every single correction came down to the golden pocket zone — 618, 500, 618, 618, 382, 618 — and bounced. Knowing the golden pocket for a strong fundamental company like Apple, Microsoft, Google means knowing where to look for buys.

Three Steps Forward, Two Steps Back (Simplified Elliott Wave)

The market moves in a rhythm: one, two, three forward — then one, two back.

Each forward move consists of:

That gives you three zigs with two zags between them. After the third zig:

Connecting to Dow Theory Phases

The three zigs ARE the three phases:

This pattern repeats fractally: three small zigs make one medium zig, three medium zigs make one large zig, and so on. The major correction events (tech bubble, GFC, COVID) are the "two steps back" from the bigger three-step pattern.

Fibonacci Clusters (Advanced Confluency)

A Fibonacci cluster is when multiple Fibonacci levels from different timeframes or different moves overlap at the same price area. This creates a much stronger support/resistance zone than any single Fib level.

How to Find Clusters

  1. Draw Fib retracement on the recent move (e.g. daily timeframe, COVID bottom to top)
  2. Zoom out and draw another Fib retracement on the larger move (e.g. monthly timeframe, entire trend)
  3. Look for where levels from both overlap — e.g. the 618 from the recent move aligning with the 382 from the whole move
  4. Draw a rectangle box around the cluster zone — that's your high-probability support/resistance area

Microsoft Example

The 618 retracement from the COVID bottom overlapped with the 382 from the entire move. This created a cluster zone. Microsoft (a trillion-dollar company) bounced off this cluster zone — two independent Fib levels both pointing to the same area of support.

Cluster zones are stronger than single Fib levels because you have multiple independent mathematical reasons to expect support/resistance at that price.

1.7 - Candlestick & Pattern Analysis

What Type of Trader Are You?

Before diving into candlesticks, you need to know which timeframe suits your personality. The candles you look at depend entirely on your trading style.

Style Timeframe Hold Period Risk Reward Stress Best For
Position Trader Weekly / Monthly Months to years Low Low (slow) Low Long-term investors, relaxed personality
Swing Trader Daily / Weekly Days to weeks/months Low-Med Medium (takes time) Low-Med Patient traders, don't need daily results
Day Trader 5min / 15min / 1hr Within the day Med-High Higher (faster) Higher People who thrive on pressure
Scalper 1min / 5min Minutes to hours High High (immediate) Very High Adrenaline lovers, decisive under pressure

Key insight: Your personality determines which style works. If you love roller coasters and spontaneity → scalping/day trading. If you prefer the beach and reading → swing/position trading. The educator started as a day trader (loved the rush, got fast feedback for learning), then transitioned to position trading as his life and priorities changed.

Match your chart timeframe to your style: Position trader = weekly/monthly. Swing trader = daily/weekly. Day trader = daily/hourly. Scalper = 1min/5min.

Anatomy of a Candlestick

Each candle gives four pieces of data: Open, Close, High, Low.

Multi-timeframe unpacking: A single daily candle can be unpacked by looking at the hourly/5min charts within that day. A bullish engulfing on the daily might show a clear downtrend reversal on the hourly. A bearish shooting star on the daily might show a strong downtrend on the 1-minute. This helps you understand what's actually happening inside each candle.

Candlestick Patterns

Reference Charts

Bullish Bearish
Bullish candles 1 Bearish candles 1
Bullish candles 2 Bearish candles 2
Bullish candles 3 Bearish candles 3

No pattern works all the time — they represent tendencies, not guarantees. Always confirm with volume and other indicators.

Single Candle Patterns

Marubozu ("Bald Head"): No or minimal wicks — open/close IS the high/low. Bullish marubozu = intense buying pressure throughout the session. Bearish marubozu = intense selling pressure. These are powerful trend confirmation candles.

Hammer / Shooting Star: Long wick at one end, small body. Hammer (bullish) = long lower wick at bottom of downtrend, buyers stepped in hard. Shooting Star (bearish) = long upper wick at top of uptrend, sellers pushed price back down. Can be either colour.

Spinning Tops / Dojis: Short body centered between long upper and lower wicks. Neutral — represents indecision between bulls and bears. What matters is the candle that follows: big green after a doji = bulls won. Big red = bears won.

Multi-Candle Patterns

Bullish/Bearish Engulfing: Two candles where the second completely engulfs the first. Bullish engulfing at bottom of downtrend = reversal signal (buyers overwhelmed sellers). Bearish engulfing at top of uptrend = reversal signal. Look for high volume to confirm.

Inside Bar (Harami): Small candle completely inside the previous candle's range. Shows the trend is pausing — indecision. The next candle determines direction.

Morning Star / Evening Star: Three-candle reversal pattern. Morning star (bullish) = long red → doji/small body → long green. Evening star (bearish) = long green → doji/small body → long red. The doji shows the battle, the third candle shows who won.

Volume with Candlestick Patterns

Chart Patterns

Chart patterns overview

ASX Trader's honest take: "If I had to drop one lesson from the entire course, it would be this one." He's not a chart pattern trader — patterns can go either way and markets sometimes do the opposite because everyone is watching the same pattern. However, patterns complement other tools and provide useful common language.

The key principle: Don't just trade because you see a pattern. Unpack what's under the hood — it's all market structure. If you can identify pivot points and market structure, you don't technically need to know pattern names. But knowing the language helps communicate with other traders.

Continuation Patterns

Triangles

Converging price ranges showing a pause in the trend. Three types:

Symmetrical: Both lines converging at equal slopes. No directional bias — neutral consolidation. Direction depends on the breakout.

Ascending: Horizontal resistance + rising support (buyers stepping in higher each time). ~80% probability of upside breakout. Eventually sellers get exhausted.

Descending: Horizontal support + falling resistance (sellers stepping in lower each time). Eventually buyers get exhausted and it breaks down.

Elliott Wave connection: Triangles occur before the FINAL wave (wave 5 / excess phase). After a triangle breakout, expect one last push, then a correction. This is why triangle breakouts can trap retail traders — the move after the triangle might be short before rolling over.

Breakout vs fake-out: If a triangle breaks out and comes back within the pivot, it was likely a fake-out or a short excess phase. Check volume — breakout should be on high volume. Also check for divergence from the start to end of the triangle.

Flags & Pennants

Flags are short consolidation periods against the trend direction after a sharp impulse move (the "pole"). They're strong continuation patterns.

Bull Flag: Uptrend → sharp move up (pole, high volume) → consolidation down (flag, low volume) → breakout continuation (high volume). The flag should NOT retrace past the Fib 382 (maybe 500 max). If it goes to 618, it's too deep — it's not a flag, it's a weak trend.

Bear Flag: Downtrend → sharp move down → consolidation up to the zag zone (302-618) on low volume → breakdown on high volume.

Pennants: Same as flags but the consolidation forms a small symmetrical triangle instead of a channel. Also shouldn't retrace past 382.

Cup & Handle

Continuation pattern: prior uptrend → rounded bottom (the cup) → small pullback (the handle, which is basically a bull flag) → breakout. Handle should retrace to Fib 382, max 500. Handle must form on lowering volume. Breakout on increasing volume. Measured target = depth of the cup projected upward from the breakout.

Darvas Box (Rectangle)

Sideways consolidation with equal highs and equal lows. When it breaks out, check: is volume confirming? If breakout comes back within → liquidity grab (check OBV — was it going up on lowering volume?). If it breaks out and continues with strong volume → genuine breakout.

Reversal Patterns

Head & Shoulders / Inverse H&S

A head & shoulders is just a failure swing. Shoulder, head, shoulder = higher high, higher low, higher high, then lower high (the right shoulder fails to reach the head), then breaks the neckline.

Advanced H&S with volume and divergence:

The neckline doesn't have to be horizontal — it can be diagonal.

Fractals: Each wave can have its own mini head & shoulders. Multiple small H&S patterns combine to form one large H&S (accumulation → public → excess → correction).

Wedges (ASX Trader's Favourite)

Converging trend lines both moving in the same direction (unlike triangles where they move in different directions).

Falling Wedge (Bullish): Both lines sloping down but converging. Tension builds as the trend tightens. Breakout to the upside on increasing volume. ASX Trader's favourite pattern — gives phenomenal risk:reward because you can enter on the breakout and place a tight stop loss. Target = back to the top of where the wedge started. Look for bullish divergence on both OBV and RSI as it comes down the wedge.

Rising Wedge (Bearish): Both lines sloping up but converging. Uptrend getting weaker. Should be going up on decreasing volume. Breakdown on strong volume.

Multi-Timeframe Candlestick Analysis

  1. Identify primary trend on higher timeframes (daily, weekly, monthly)
  2. Confirm on lower timeframes — look for consistent patterns aligning with the primary trend
  3. Spot entry/exit points on even lower timeframes (15min, 5min) for precise entries
  4. Detect confluences — a bullish reversal pattern on the daily, supported by a similar pattern on the 4-hour, with increased volume = strong setup

Example: A bullish engulfing on the daily = look inside and you might see a double bottom on the hourly. Two reversal signals confirming each other across timeframes.

Advanced Pattern Analysis — Combining Everything

The real power of patterns comes from combining them with volume and divergence:

For reversal patterns (H&S, wedges):

For continuation patterns (flags, triangles, boxes):

Index Confirmation

Dow Theory Tenet 5: The Averages Must Confirm One Another

For a market trend to be valid, both the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) must move in the same direction. If one average makes new highs while the other doesn't, it suggests weakness in the trend — divergence between indices is a signal (blinker) that a reversal may be coming.

Fun fact: Charles Dow invented both the DJIA and the DJTA. The DJIA is the longest-running American index (originally 12 stocks, now 30, over 100 years old). When someone questions TA, remind them the longest-standing American index is named after the guy who invented it.

Historical DJI vs DJT Divergence — 6 out of 6 Major Tops

The educator demonstrated that EVERY major market top showed DJT divergence before the crash:

  1. 1987 Crash (worst crash in history) — DJI making new highs, DJT making new lows. Change of market structure on both confirmed → could have avoided the biggest crash in history
  2. 1989-90 Crash — DJI new highs, DJT new lows before ~25% drop
  3. 2000 Tech Bubble — DJI new high in Jan 2000, DJT had already made a lower high from May 1999
  4. 2007 GFC — DJI new high, DJT made new low. Before the dramatic drop
  5. COVID 2020 — DJI making higher highs, DJT making lower lows before the crash
  6. 2022 Bear Market — DJI new highs, DJT making lower highs during the top

Six out of six times before a major crash, the transportation average was a leading indicator showing non-confirmation. This is a third type of divergence (alongside RSI price divergence and OBV volume divergence).

How to Compare in TradingView

  1. Click the layout selector (top right corner, small box icon)
  2. Select split screen (two charts side by side)
  3. Type the second ticker (e.g. DJT) in the right panel
  4. Match timeframes on both charts — make sure both are daily, or both weekly
  5. Use vertical lines to align pivots and dates across charts — this shows you whether the highs/lows match

Modern Multi-Chart Confirmation

Dow only had two indices to compare. Today there are many. The same principle applies: if you're in a raging bull market, ALL related indices should be raging and making new highs at the same time.

S&P 500 vs Russell 2000

The Russell 2000 (small caps, IWM) should confirm the S&P 500 in a healthy bull market. If the S&P keeps making new highs but the Russell goes sideways or makes lower highs, that part of the trend is weakening — money isn't flowing into risk-on small caps.

Bitcoin vs Ethereum

Ethereum is a more risk-on asset than Bitcoin. In a healthy crypto bull market, both should be making new highs. Examples of non-confirmation:

Sector → Individual Stock Flow

When a sector starts breaking out, you can find individual stocks within that sector that are also breaking out — double confirmation from two charts:

Best Stocks Break Out Before the Sector

The best fundamental companies within a sector often break out BEFORE the sector itself does. Big money flows into the best-of-the-best first.

Gold example (Northern Star): When gold was making lower lows and a triple bottom, Northern Star was already making higher lows → showing strength before the commodity itself reversed. RSI showed bullish divergence on gold at the same time. This is how the educator called the gold bottom — confluency from gold chart + gold miners chart + Northern Star chart + RSI divergence.

Confluency — The Core Principle

Definition: A confluence occurs when two or more structures come together to form a high-probability zone — like rivers joining into one channel.

In trading: Confluence is where multiple technical analysis methods give the same signal. The more reasons pointing the same direction, the higher probability the trade works.

ASX Trader's Rule

"I will never take a trade unless I have a minimum of three points of confluency." This is why he maintains high win percentages — not by being lucky, but by stacking evidence.

Bitcoin $15K Bottom — 7 Points of Confluency Example

The educator demonstrated this breakout had:

  1. Decline resistance broken (diagonal trend line)
  2. Horizontal resistance broken (major S/R level)
  3. Falling wedge pattern (bullish reversal)
  4. Change of market structure (HH/HL)
  5. Bullish divergence on RSI
  6. Volume supporting the move
  7. Ethereum not confirming new low (indices diverging = bullish)

Seven independent reasons all pointing to the same conclusion. You should be almost shocked when a trade with this much confluency doesn't work.

How to Think About Confluency

"Think of it like you're in front of a judge, building your case." Every signal is a piece of evidence. The more evidence you stack, the stronger your case. Don't take a trade because of one thing — you need market structure + indicators + multi-chart confirmation.

A trade with only one reason (e.g. "it changed market structure") is weak. A trade with five to seven reasons (market structure + S/R break + pattern + divergence + volume + index confirmation) is your highest-probability setup.

Types of Confluency

Single-chart confluency — multiple signals on the same chart:

Multi-chart confluency — signals from related charts confirming each other:

Non-Confirmations as Early Warning Signs

When sectors or stocks FAIL to confirm broader index moves, it's an early clue that a trend may be weakening, reversing, or masking deeper structural issues. It's the same concept as RSI or OBV divergence, just applied across charts instead of across indicators:

It's not TA's fault when something goes wrong — it's human error. You can eliminate that error by finding bullish signals across multiple charts, not just one.

Psychology & the Principle of Markets Discounting Everything

Dow Theory Tenet 1: The Averages Discount Everything

All available information — economic, political, and market factors — is already reflected in the price. The market discounts everything except acts of God (black swans / unknown unknowns). Even then, the market absorbs, reacts, and adjusts to shocks fairly rapidly.

"If It's in the News, It's Old News"

Before something gets printed, someone had to find the information, run it by the editor, print the story — and they've told their family and friends first. There's probably a hundred people who found out before the public. By the time mass media publishes, the inner circle already knows.

"Buy the rumour, sell the fact" — investors buy when they hear rumours of good news, then sell once it's officially announced because the good news is already priced in. Insiders position early, then liquidate into public participation.

Real-World Examples

The Insider Dynamic

Big money gets information before retail. They accumulate during pessimism. Once the bullish news is published, insiders are already liquidating into the public buying. The public joins in after information is published, contributing to the herding behaviour that causes the market to overreact. Eventually a top or bottom forms as the market runs out of buyers/sellers.

The Wall Street Cheat Sheet — Market Cycle Psychology

The market cycle is a repeating emotional cycle, just like seasons. When you think it can't get any hotter (euphoria), you're probably at the peak. When you think it can't get any colder (despair), you're probably at the bottom.

Bull Phase Emotions

Disbelief → Hope → Optimism → Belief → Thrill → Euphoria

Bear Phase Emotions

Complacency → Anxiety → Denial → Panic → Capitulation → Anger → Depression

Smart Money vs Public Entry

Phase Who's Buying Sentiment
Stealth (Accumulation) Smart money Nobody talking about it
Awareness (Early public) Institutional investors First media attention
Mania (Public + Excess) Public, retailers, FOMO Media frenzy, euphoria
Blow-off → Distribution Smart money selling to public Universal bullishness

"Big money loves what you hate. Big money hates what you love." When you hate something, they typically love it. Do the opposite of the masses — the herd is always wrong at extremes.

Matching Sentiment to Phases

Use sentiment as another point of confluency with your TA:

Emotions in Trading

Greed & Fear

Greed drives overvaluation during bull markets. Fear drives panic selling during bear markets. "The market can remain irrational longer than you can remain solvent." Everything can say it's expensive with divergence and lowering volume, but it can keep pushing up. Sometimes weakness leads to an immediate reversal; sometimes it takes the second, third, or fourth signal.

Herd Mentality

Investors follow the crowd assuming others have superior information. This leads to prices reaching levels they should never reach — both up and down. Be careful of the "it's cheap compared to where it was" trap: if something was at $100 but fundamentally should only be worth $10, then $20 is still expensive even though it's "80% off."

Media Influence

Fear sells better than positivity. Headlines are designed to be catchy and grab attention, not to be accurate. The educator, as a journalist himself, has seen editors change his titles to be more sensational.

Overreaction & Underreaction

Markets tend to overreact to news (exaggerated moves beyond fundamentals) and sometimes underreact (failing to fully adjust). Both create trading opportunities.

Elliott Wave Personality (Simplified)

Each wave has its own personality and sentiment signature. This connects phases + psychology + Fibonacci into one framework:

Impulse Waves (Bull Market)

Wave 1 (Accumulation): Fundamental news almost universally negative. Previous bear trend still considered strong. Sentiment bearish. Volume increases slightly but not enough to alert most analysts. Early adopters enter cautiously. More bears than bulls.

Wave 2 (Correction of Wave 1): News still bad. Bearish sentiment quickly rebuilds — "see, still a bear market." Volume LOWER than wave 1. Should not retrace more than 61.8% of wave 1. Falls in a three-wave pattern (ABC). Can never go below the start of wave 1 (universal rule — if it does, it's not wave 1).

Wave 3 (Public Participation): Usually the LARGEST and most powerful wave (in equities; in commodities, wave 5 can be larger). News turns positive. Prices rise quickly. Corrections short and shallow. Anyone waiting for a pullback misses the boat. By the midpoint, the public joins in. Taste of euphoria toward the top.

Wave 4 (Correction of Wave 3): Typically choppy and sideways (often a triangle). Retraces less than 38.2% of wave 3 — shallow correction. Volume well below wave 3. Good place to buy a pullback if you understand wave 5 is coming. Frustrating because of lack of progress.

Wave 5 (Excess): Final leg. News universally positive, everyone bullish. Volume LOWER than wave 3. Momentum indicators show DIVERGENCE (RSI and OBV divergence from wave 3 top to wave 5 top). Average investors finally buy in — right before the top. Bears get ridiculed.

Corrective Waves (Bear Market)

Wave A: Fundamental news still positive. Everyone thinks it's just a pullback — "buy the dip, baby." Increased volume on the down move.

Wave B (The Trap): Price rallies — seems like the bull market is resuming. Volume LOWER than wave A. Lures people back in, only to face disappointment. Temporary sentiment shift.

Wave C: Almost everyone realises the bear market is real. Fear and panic. Volume picks up. Capitulation at the end — last holdouts finally give up, marking the bottom.

Three Tools to Identify a Top

  1. Can you see you're in the third phase (excess/wave 5)?
  2. Is sentiment really bullish/euphoric?
  3. Do you have divergence on your indicators (RSI, OBV)?

If all three = yes → start taking profits. This is how the educator called tops on lithium, crypto in 2021, and other assets.

Sentiment Analysis Tools

AAII Sentiment Survey

Search "AAII sentiment" — weekly survey of where investors believe the market will be in 6 months. When bullish readings get into the high 40s-50s, markets often top. When bearish readings hit similar extremes, markets often bottom.

Fear & Greed Index

Search "fear and greed index" — CNN has one for stocks, Alternative.me has one for crypto. Shows current market sentiment on a scale from extreme fear to extreme greed.

VIX (Volatility Index)

The "fear gauge." When VIX spikes above ~45-50, it signals capitulation — historically these have marked bottoms (GFC bottom, COVID bottom, every major sell-off). When VIX is low and declining, the market is complacent and in a bull market.

Options Max Pain

Search "options max pain swaggy stocks" — shows the price where option sellers pay out the least. Markets often gravitate toward this price around expiry dates. Quadruple witching (3rd Friday of March, June, September, December) — most major market tops and bottoms happen around these dates.

Contrarian Investing — Putting It All Together

Buy when nobody is talking about it. Sell when everyone is talking about it.

The practical framework:

  1. Identify the accumulation phase (sentiment is terrible, nobody cares)
  2. Wait for the first HH/HL (change of market structure = beginning of public participation)
  3. Ride the public participation phase
  4. Watch for the three top signals (third phase visible + euphoric sentiment + divergence)
  5. Start taking profits during the excess phase
  6. Don't try to sell the exact top — just recognise you're in the excess phase and act accordingly

Examples: Bitcoin 2020-2021 cycle, Woodside Energy pre-GFC, ARK ETF blow-off, Netflix excess phase — all showed the same pattern of accumulation → public → excess → correction, with sentiment matching each phase perfectly.

Risk to reward, trade planning & risk management

Why Risk Management Matters

Effective risk management combined with TA is what separates consistent traders from gamblers. Losses are inherent in trading — thinking you'll never lose is like playing basketball and thinking you'll never miss a basket. The goal isn't to never lose; it's to manage losses so they don't destroy your account.

"I've never lost a trade. I've either won it or I've learned from it."

Correct Risk vs Over Risk

If you're checking your portfolio constantly, can't sleep, and get defensive when someone says something negative about your holdings — you're over-risked and emotionally attached. Correct risk management means you're calm, composed, data-driven, and goal-focused. The trade is just another number.

The Five Possible Outcomes of a Trade

Every trade has exactly five possible outcomes — nothing else can happen:

  1. Break even — no gain, no loss
  2. Win big — the money makers
  3. Win small
  4. Lose small
  5. Lose big — the account killers

The goal: eliminate #5 (big losses). If you eliminate big losses using stop losses, you're left with break even, small wins, small losses, and big wins. The small wins and small losses roughly cancel each other out. What's left? The big wins — your account growers.

The 1% Rule

Never risk more than 1% of your account on a single trade.

With a $100,000 account, if you're wrong you lose $1,000 (1%). You'd have to be wrong 100 times IN A ROW to blow your account. That's virtually impossible with any reasonable strategy.

The Math That Changes Everything

Losing strategy (no 1% rule): 10 trades, won 6 out of 10 (60% win rate), but had three big losses of $7-10K each. Result: -$1,000 despite winning 6 trades. Big losses wiped out big wins.

Winning strategy (with 1% rule + 3:1 ratio): 10 trades, won only 3 out of 10 (30% win rate). Every loss was $1,000 (1%). Wins were $3K, $3K, and $10K (3:1 minimum). Result: +$9,000 (9% account growth) despite winning only 3 trades.

You can be right only 30% of the time and still make money. This is the single most important concept in the course.

The 3:1 Risk-to-Reward Ratio

Never take a trade that doesn't pay a minimum 3:1. For every $1 risked (stop loss), aim to make at least $3 (take profit).

How It Works

This is like going to a casino where landing on black loses you $100, but landing on red wins you $300. You only need to be right 30% of the time to be profitable.

Setting Stop Loss

Place your stop loss just beyond a logical invalidation point — below a pivot low or support level for a long trade. If price hits your stop, your trade thesis is genuinely invalidated (market structure is no longer bullish). The stop should go where, if hit, you're objectively wrong.

Setting Take Profit

Use your toolkit: Fibonacci zag zones (382-618), horizontal resistance levels, measured move targets, channel boundaries. Look for where Fib levels align with other confluency points — that's your highest probability take-profit zone.

Why You Can't Take Every Breakout

Not every breakout gives you a 3:1 trade. If price breaks out and your stop is too far from the entry relative to the target, the R:R might only be 0.8:1 — can't take it. But if price gives you a pullback/retest first, your stop can go under the retest pivot, often giving you 3:1+. This is another reason the breakout+retest strategy is so powerful — it improves your R:R.

Breaking the Myth: Cheap vs Expensive

"Forget price. Focus on risk to reward." This is the most important takeaway from the entire course.

A "cheap" asset at $0.01 with a poor R:R is a BAD trade. An "expensive" asset at $500 with a great R:R is a GOOD trade. Your goal is NOT to buy low and sell high — it's to risk little and make more.

You could pay MORE for an asset and make MORE money if the R:R is better. Bitcoin at $100K with a 10:1 R:R is a better trade than Bitcoin at $3K with a 2:1 R:R.

Stop thinking: "What price did I pay?" Start thinking: "Where's my stop? Where's my target? What's my R:R?"

The Recipe for Success — The Complete Trade Checklist

You've been given all the ingredients across 10 weeks. Now here's the recipe card.

Non-Negotiables (Core Ingredients — Must Have ALL)

These are like flour, eggs, and milk for a cake. Without them, you don't have a trade.

# Non-Negotiable Question
1 Market Structure Is market structure on my side? (HH/HL for longs)
2 Reversal Pattern Was there a double top/bottom, non-failure swing, or failure swing before the structure change?
3 Volume Confirmation Is volume confirming the move? (OBV supporting the breakout)
4 Support/Resistance Break Is it breaking through a major S/R level? (Dow Theory says you want it to break a significant level)
5 Minimum 3:1 R:R Does the trade pay at least 3:1? If not, don't take it

If you can't tick all five → no trade. Don't even look at the extras. No cake without the core ingredients.

Negotiables (The Icing — Makes It Better)

Once you have all five non-negotiables, these increase probability:

Signals/Blinkers (want at least 1, prefer 2):

Context:

Additional Confluency (the more the better):

Stop Loss Validation:

Take Profit Validation:

The Bitcoin $18K Trade — Recipe in Action

The educator's real trade demonstrated the full checklist:

  1. ✅ Change of market structure (failure swing reversal)
  2. ✅ Falling wedge pattern (bullish reversal)
  3. ✅ Breaking back through major support (liquidity grab confirmed)
  4. ✅ Breaking through the zag zone of the prior move (not just correcting the last leg)
  5. ✅ Bullish divergence on weekly RSI
  6. ✅ Bullish divergence on weekly OBV
  7. ✅ Increasing volume on the breakout
  8. ✅ 3:1+ R:R with stop under pivot and TP at Fib zone

Eight reasons to be in, one minor negative (daily OBV didn't confirm). Way more evidence for than against. That's the standard you're aiming for.

Key Mindset Shifts

Term 1 Masterclass

End-of-term session combining everything from the 10-week course into practical application.

The Skill Hierarchy — Why the Course Is Sequenced This Way

Every skill builds on the one before it. The sequence isn't arbitrary — you can't do the later steps without mastering the earlier ones:

  1. Pivot Points → The absolute foundation. Can't do anything without these
  2. Market Structure → HH/HL, LL/LH, EH/EL. Requires pivot points. "Market structure is king"
  3. Reversal Patterns → Double top/bottom, non-failure swing, failure swing. Need to know when market structure flips
  4. Support & Resistance → Horizontal zones where buyers/sellers step in. Identifies key levels to break through
  5. Phases → Accumulation, public participation, excess. Where are we in the cycle? Don't buy the excess phase
  6. Volume & OBV → Is the move supported? Fuel for the market. Effort vs result
  7. RSI Divergence → Leading indicator — signals (blinkers) before the reversal confirms
  8. Fibonacci → Where will it retrace to? Zag zone targets. Trend strength assessment
  9. Candlestick Patterns → Complementary confirmation. Unpacking candles across timeframes
  10. Confluency → Combining everything together. Multiple rivers meeting at one point
  11. Stop Loss & Take Profit → Where am I wrong? Where am I taking profit? What's my R:R?

You should now be able to pull up ANY chart and analyse its short-term, medium-term, and long-term outlook using all these skills.

The Complete Trade Process — Step by Step

When you pull up a chart, this is the order of operations every time:

Step 1: Identify Market Structure

Mark your pivot points. Determine: is it HH/HL (bullish), LL/LH (bearish), or EH/EL (sideways)? Draw the line connecting pivots to see the trend direction. This comes first — always.

Step 2: Look for Reversal Patterns

Has there been a double top/bottom, non-failure swing, or failure swing? Is market structure changing? If market structure hasn't changed, there's no trade to take.

Step 3: Check Key Levels

Is it breaking through a major support/resistance zone? Draw your horizontal S/R zones (green for support, red for resistance). Is there a resistance/support flip happening?

Step 4: Assess the Phase

Where are we in the cycle? Accumulation = wait for breakout. Public participation = ideal entry zone. Excess = take profits, don't enter new positions.

Step 5: Check Your Blinkers

Does volume confirm the move? Is OBV supporting the breakout? Is there RSI divergence that preceded the reversal? At least one blinker, preferably two.

Step 6: Use Fibonacci

Where might it retrace to (zag zone)? Where are the key Fib levels? Does the 382/618 align with any horizontal S/R levels (cluster zone)?

Step 7: Look for Confluency

How many independent reasons support this trade? Pattern? Trend line? Another chart confirming? Candle pattern? Minimum 3 points of confluency.

Step 8: Plan Your Exit (Before You Enter)

Stop loss: Below the pivot low / invalidation point. Where is the trade objectively WRONG?

Take profit: Fib resistance zone, horizontal resistance, or measured move target. Where do Fib levels align with S/R confluency?

R:R check: Is it minimum 3:1? If not, wait for a pullback/retest to improve it. Don't force the trade.

Logan's Real Trade Breakdown — Every Skill Applied

An ex-student (1.5 years post-course, swing trader) broke down a live trade showing exactly how the 10-week toolkit applies:

Entry Identification

  1. Accumulation phase identified — long sideways range after a major downtrend
  2. Breakout through resistance — price broke above the accumulation range
  3. Didn't FOMO — missed the initial 40% move. Instead, drew an arrow showing "I'm waiting for the retest"
  4. Break and retest — price came back to old resistance, now becoming support
  5. Non-failure swing reversal — change of market structure on the retest
  6. Jumped to hourly for precise entry — used smaller timeframe to time the entry on a candle close above resistance
  7. Stop loss under the pivot — tight stop (~12%) under the retest low. Much better than 40% stop if he'd entered at the breakout

Confirmation Checks

  1. RSI divergence — bullish divergence formed during the sideways accumulation
  2. OBV broke out with price — volume confirmed the breakout (eliminates fake-out risk 9/10 times)
  3. Volume bars — increasing volume on the breakout candles

Profit Management

  1. Used Fibonacci — drew Fib levels to identify key resistance. 618 aligned with major horizontal S/R (confluency)
  2. Added to the position — when price broke through the 618 and retested it as support, he added more
  3. Raised Fibonacci — after each new leg, re-drew Fib from the new pivot to find the next target
  4. Weekly timeframe target — zoomed out to weekly, drew Fib from the head & shoulders top to the bottom. 618 aligned with major resistance zone = ultimate take-profit target

The Psychology Lesson

Logan was up ~60% and every part of him wanted to sell. But his journaling had identified "letting winners run" as his biggest weakness — he kept nailing entries but exiting too early. So before taking this trade, he made a promise: "I'm holding to my target no matter what."

The plan: partial profit at key resistance if it reaches there, full exit at the weekly Fib target. If it retraces, let it breathe in the zag zone (382-618). If it bounces off 382, add to position and raise stop loss. If it changes market structure to bearish, exit. Then if it later breaks out again → repeat the entire process (break, retest, enter, new target).

"You're never going to be angry at yourself or disappointed following the plan."

Post-Course Roadmap — Where to From Here

Trading

Psychology (The Real Edge)

The Non-Negotiable Checklist (Quick Reference)

Before every trade, tick these off:

✅ Non-Negotiable
☐ Market structure on my side
☐ Reversal pattern confirmed
☐ Volume confirming the move
☐ Breaking through major S/R level
☐ Minimum 3:1 risk-to-reward

Then look for extras: RSI divergence? OBV divergence? Fibonacci level? Pattern? Multi-chart confirmation? Phase identification? The more you stack, the higher probability the trade works.

Key Quotes to Remember

Complex divergence

Recap: Regular Divergence Fundamentals

RSI is a price momentum indicator. Most people (90%) use it for overbought/oversold — but the biggest moves happen when RSI IS overbought/oversold. On larger timeframes (monthly/weekly), overbought/oversold readings can be meaningful. On daily and below, they're less reliable.

Key rule: Divergence must start from an overbought or oversold reading first. You don't get valid divergence in the neutral zone (30-70). The first extreme (overbought/oversold) establishes the baseline, then the next move creates the divergence.

Divergence strength recap:

Divergence means weakening, not necessarily reversal. It could lead to a sharp correction OR a sideways consolidation. Always trade the trigger (change of market structure), not the signal (divergence alone).

What Is Complex Divergence?

Complex divergence is when you get multiple divergence signals that combine together before a reversal occurs. Instead of one clean divergence → reversal, the market gives you several divergence signals in sequence.

You might get: strong → medium → weak before the actual reversal. Or three strongs. Or strong → weak. Any combination. The market is like your body during a long run — sometimes you get tired after the first signal and stop. Sometimes you push through several signals of fatigue before finally stopping.

This is exactly why you trade the trigger, not the signal. If you traded the first divergence signal every time, you'd get wrecked when the market produces two or three more before actually reversing. Each divergence signal says "weakening," but only the change of market structure says "reversed."

Practical Example

On the S&P 500 daily: price made higher high after higher high after higher high, while RSI made lower high, lower high, lower high. Three bearish divergence signals in a row. If you'd shorted on the first one — stopped out. Second one — stopped out again. It wasn't until the actual change of market structure (break below support) that the reversal confirmed. All the divergences were correct that the trend was weakening — the trigger was what told you WHEN.

Multiple Timeframe Divergence

Multiple timeframe divergence is where you look for divergence signals across different timeframes simultaneously. This is how you pinpoint major reversals and get precise entries on big moves.

The Fractal Principle

Each phase contains sub-phases. Each sub-phase contains its own divergence:

If you get divergence on the monthly AND the weekly AND the daily AND the hourly — you're looking at a major reversal, not just a small pullback.

How to Use It

Top-down approach (eagle → hawk):

  1. Start on the monthly — is there bearish divergence? If yes, the big trend is weakening
  2. Go to the weekly — is there also bearish divergence? If yes, the intermediate trend is weakening too
  3. Go to the daily — bearish divergence here too? The shorter-term trend is also weakening
  4. Go to the 4-hour or hourly — look for the actual reversal pattern and pinpoint your entry

You're looking at the big picture like an eagle, then zooming down like a hawk to pinpoint the exact entry. Your entry might be on the hourly, but you're trading a monthly reversal.

Why This Matters for Trade Size

If you have divergence only on the hourly, expect only an hourly-level pullback. If you have divergence on the monthly + weekly + daily + hourly, you're looking at a major multi-month reversal. The timeframe of the divergence tells you the magnitude of the expected move.

Real example (Bitcoin top): Monthly showed bearish divergence from the public to excess. Weekly showed the same. Daily showed the same. 4-hour showed a double top with bearish divergence. Hourly confirmed the reversal pattern. Entry was on the hourly, but the trade captured the entire monthly-level correction.

Real example (Bitcoin bottom): Monthly showed bullish divergence. Weekly confirmed. Daily confirmed. 4-hour showed bullish divergence. Hourly showed double bottom with change of market structure. Entry on the hourly captured the start of the entire new bull market.

Divergence to Convergence — When Has It Played Out?

This is the key concept most traders miss: how do you know when the divergence has finished playing out?

The Answer: When Divergence Returns to Convergence

When a divergence phase returns to convergence, the signal has played out and the market is "back to normal."

The Green-Red-Green Framework

Map your chart into zones:

  1. Green zone (convergence): Price going up, RSI going up — they match. Trend is strong
  2. Red zone (divergence): Price still going up, but RSI starts going down — they don't match. Trend is weakening
  3. Green zone again (convergence): After the correction, price going down AND RSI going down — they match again. The divergence has played out

The Target: Back to Where Divergence Started

Wherever the divergence started from is where price tends to correct back to. The trend was strong up until the point of divergence. Everything after that point was a "fake" or weakening trend. The correction wipes out the weak portion and returns to where the trend was last genuinely strong.

S&P 500 Examples

How to Apply This

Use the green/red framework as another point of confluency:

Steps to Find a Major Top

A practical step-by-step process:

  1. Monthly: Is there bearish divergence? (Higher price, lower RSI)
  2. Weekly: Confirm — also bearish divergence?
  3. Daily: Confirm — bearish divergence or double top with weakness?
  4. 4-Hour: Look for the excess phase of the excess phase — bearish divergence within the final push up
  5. Hourly: Pinpoint the actual reversal — look for change of market structure

Draw RSI divergence on candle BODIES, not wicks — RSI doesn't consider wicks.

Important Note: Tops Are Easier Than Bottoms

The educator finds it easier to identify tops of impulse moves than bottoms of corrections. Why? Impulse moves follow a predictable 5-wave pattern (accumulation → public → excess) with divergence from wave 3 to wave 5. Corrections can be complex — sharp, sideways, extended, shallow, deep — making the exact bottom harder to pinpoint. Corrections often end in the golden pocket (382-618), but WHERE within that zone is tricky.

Rules & Guidelines for Complex Divergence

Hidden Divergence

Regular vs Hidden Divergence

Regular Divergence Hidden Divergence
Signals Potential reversal or consolidation Potential continuation of existing trend
Bullish Price: lower low, RSI: higher low Price: higher low, RSI: lower low
Bearish Price: higher high, RSI: lower high Price: lower high, RSI: higher high
Context Appears at the END of a trend Appears WITHIN an established trend
Analogy Body getting tired during a run — slowing down Basketball team is down, but the players look energetic — comeback coming

Key distinction: Regular divergence = the trend is weakening and may reverse. Hidden divergence = despite a temporary pullback, the underlying momentum is intact and the trend should continue.

Hidden Bullish Divergence

Requirements

What It Means

Even though RSI made a lower low (which looks bearish in isolation), the price made a higher low (which is bullish). The RSI is resetting — reloading energy for continuation. Think of it as the market catching its breath before the next push.

Confirmation Process

Hidden bullish divergence alone is NOT a buy signal. You need:

  1. Spot the hidden bullish divergence (higher low on price, lower low on RSI)
  2. Wait for divergence to turn into convergence — RSI starts matching price again (both making HH/HL)
  3. Wait for change of market structure — HH/HL breakout through resistance
  4. Then take the trade — you're buying a confirmed continuation with hidden bullish as extra confluency

Without the confirmation, it's just POTENTIAL hidden bullish divergence. You keep an eye on it, and if market structure confirms, it becomes another green tick on your checklist.

Bitcoin COVID Bottom Example

From the $4K COVID bottom through the bull run, hidden bullish divergence appeared repeatedly at each pullback: higher low on price, lower low on RSI, continuation upward. It happened multiple times in sequence — each time the trend continued. Eventually, hidden bullish stopped appearing and regular bearish divergence began, signalling the trend was transitioning from continuation to potential reversal.

Hidden Bearish Divergence

Requirements

What It Means

Even though RSI made a higher high (which looks bullish in isolation), the price only made a lower high. The "rally" is fake — the underlying bearish momentum is intact. The trend should continue down.

Confirmation

Same process as bullish but inverted:

  1. Spot hidden bearish (lower high on price, higher high on RSI)
  2. Wait for divergence → convergence (RSI starts matching price — both making LL/LH)
  3. Wait for change of market structure — breakdown through support (e.g. descending triangle breakdown)
  4. Take the short or exit longs

The Battle: Regular vs Hidden

This is the critical practical concept. Regular bullish divergence and hidden bearish divergence can appear at the same time, creating a battle:

NVX example: Price made a new low with bullish RSI divergence (potential reversal). But then on the next rally, hidden bearish appeared (continuation signal). The battle was settled when price broke below the support level — hidden bearish won, and the downtrend continued.

Key takeaway: Regular bullish divergence doesn't always mean reversal — it can just be a bounce. That bounce can then create hidden bearish divergence, which continues the trend lower. This is why you NEVER trade divergence alone. Market structure confirms the winner.

Similarly, hidden bullish can transition into regular bearish at a top. The trend was continuing (hidden bullish), then the final push showed regular bearish divergence, and the trend reversed. Knowing both types helps you see these transitions happening.

Hidden Divergence Across Waves (Elliott Wave Context)

When Can You Have Hidden Bullish?

The Rule

As markets zig and zag, you can find hidden bullish from one zag zone to the previous zag zone (same degree). When you get the bigger "two steps back" (correcting the whole three-step move), you can find hidden bullish from that larger pullback back to the previous larger pullback.

The minute market structure changes to bearish → hidden bullish is invalidated. You can't have hidden bullish in a downtrend. Once the downtrend establishes, you start looking for hidden bearish instead.

Trading Strategies with Hidden Divergence

As Breakout Confirmation

When trading a breakout:

You could enter on the early signal (yellow), but it's confirmed once it breaks the high (purple). Looking back, you see hidden bullish was telling you it was going to continue.

With Candlestick Patterns

If you get a pivot with bullish candlestick patterns (engulfing, morning star, hammer) at a support level AND hidden bullish divergence → multiple confluency points all saying "bounce and continue."

With Fibonacci

Hidden divergence aligning with a Fibonacci retracement level (bouncing off the 382 or 500 of the prior move with hidden bullish) = confluence between two independent methods. Strengthens the signal significantly.

Stop Loss Placement

Rules & Guidelines

Directionally aligned divergence

What Is Directionally Aligned Slope Divergence?

Regular divergence = price and RSI going in opposite directions. Hidden divergence = continuation signal within a trend. Directionally aligned divergence = price and RSI going in the SAME direction, but at DIFFERENT RATES.

Both are going up — but price is going up at a 50° angle while RSI is only going up at a 20° angle. They're not opposing each other (so it's not regular divergence), but they're not in sync either. The rate of ascent (or descent) is different, and that difference = weakening momentum.

The Spectrum

State What's Happening Signal
Full convergence Same direction, same rate Very bullish — strong trend
Directionally aligned divergence Same direction, different rate Weakening — trend losing steam
Regular divergence Opposite directions Trend may be about to reverse

Think of it as a progression: convergence → directionally aligned → regular divergence → reversal. The trend starts healthy, begins to show cracks (directionally aligned), then the cracks widen (regular divergence), then it breaks (change of market structure).

Degree Matters

The greater the gap between the slopes, the more bearish (in an uptrend) or bullish (in a downtrend) it is. A slight difference is a mild warning. A massive gap where price is racing up at 60° but RSI is barely crawling at 10° is a strong warning — the trend is running on fumes.

How to Identify It

  1. Draw a trend line or channel on your price action — note the angle of ascent/descent
  2. Draw the same on your RSI — compare the angle
  3. If price is climbing at 45-50° but RSI is only climbing at 20-25° = directionally aligned divergence
  4. Where it starts = your correction target. The trend was genuinely strong before that point. Everything after is the "weak" portion that's likely to be corrected

S&P 500 COVID Bottom Example

From the COVID bottom, price and RSI went up at matching angles — convergence, healthy trend. Then price continued climbing steeply (45°+) while RSI started climbing at a flatter angle (~30°). That was directionally aligned divergence — the trend was weakening even though everything looked bullish on the surface. Eventually it moved into regular divergence, then changed market structure. The correction came back to the point where directionally aligned divergence started — the Fib 500 level aligned with it perfectly (two points of confluency for the target).

Bitcoin Example

Price going up in a parallel channel at a steep angle. RSI going up at a much flatter angle — directionally aligned divergence. The blinkers were on. When market structure changed (broke below support), the trade was confirmed — not just because of the structure break, but because the blinkers (directionally aligned divergence) had been warning beforehand.

The Three Types of Blinkers — Complete Framework

When you get a change of market structure, look back and ask: "Did it have its blinkers on?"

The blinkers can be any of:

  1. Regular divergence — price and RSI going opposite directions
  2. Hidden divergence — continuation signal within a trend (or the battle between hidden and regular)
  3. Directionally aligned divergence — same direction, different rate

If your change of market structure has at least one blinker type backing it up, you have more evidence. If it has multiple, even better. "Picture yourself in front of a judge — the more evidence, the stronger your case."

Applying All Three Divergence Types Together

For Reversals

The full progression of a topping process might look like:

  1. Convergence — everything matching, healthy trend (green)
  2. Directionally aligned — same direction but different rates (early warning)
  3. Hidden bullish battling regular bearish — the market is fighting between continuation and reversal
  4. Regular divergence — price going up, RSI going down (clear warning)
  5. Change of market structure — the trigger. Now look back and see all the blinkers that preceded it
  6. Convergence again — both going down together, confirming the new downtrend

For Breakouts

Hidden bullish divergence before a breakout tells you the uptrend has more legs:

  1. Check: was there hidden bullish on the pullbacks before the breakout? If yes, the trend is strong and the breakout should be genuine
  2. After the breakout: don't panic on bearish divergence. Regular bearish often turns into hidden bullish — it's just the RSI resetting. 9 times out of 10, bearish divergence in a bull run is NOT the end. It resets, prints hidden bullish, and pumps again
  3. Wait for divergence → convergence to know who won (hidden bullish vs regular bearish). If convergence resumes on the upside (both making HH/HL), hidden bullish won and the trend continues

Key practical takeaway: Don't get freaked out by bearish divergence during a bull run. Regular bearish turns into hidden bullish, resets the RSI, and the trend continues. It's only a problem when it actually leads to a change of market structure.

For Pullback Entries

If you see directionally aligned divergence within a move up, you know a pullback is coming. Use it to:

  1. Identify the starting point of the weakness = your correction target
  2. Combine with Fibonacci (often the directionally aligned start point aligns with Fib levels)
  3. Wait for the pullback to reach that zone
  4. Look for a reversal pattern (double bottom + bullish divergence at the target)
  5. Enter on the change of market structure back up

NVX Example — The Full Battle

This example showed the complete interplay:

  1. Downtrend with convergence (both going down, matching)
  2. Regular bullish divergence appeared (potential reversal)
  3. But then hidden bearish appeared (continuation of downtrend)
  4. Battle between regular bullish and hidden bearish
  5. Hidden bearish won — price broke support and continued down
  6. Eventually regular bullish turned real → double bottom → convergence → breakout through support
  7. Uptrend established → directionally aligned divergence appeared (weakening)
  8. Pullback to the 382-618 zone (aligned with directionally aligned start point)
  9. Double bottom with bullish divergence at the target → re-entry

Rules & Summary

Pattern recognition for confluency

The Core Rule: Match the Right Divergence to the Right Pattern

Pattern Type Divergence to Look For Why
Continuation (triangles, flags, rectangles) Hidden divergence Continuation patterns show trend strength. Hidden divergence = continuation of trend
Reversal (H&S, double tops, wedges) Regular divergence Reversal patterns show trend weakness. Regular divergence = weakening trend

You cannot use hidden divergence on reversal patterns — hidden is continuation of the trend, but the trend hasn't flipped yet at the reversal point. Similarly, you wouldn't look for regular divergence to confirm a flag breakout — that's a continuation setup.

Continuation Patterns + Hidden Divergence

Ascending Triangle

Bullish reversal & continuation pattern — higher lows each move into horizontal resistance.

Ascending triangle diagram

Ascending triangle example 1

Ascending triangle example 2

Descending Triangles

Just the opposite — prior downtrend → hitting support → sellers stepping in lower each time.

Darvas Box (Rectangle)

A neutral formation that can be bullish or bearish.

Darvas box example

Bull Flag

Strong impulsive move forms the pole, then consolidation usually in the form of a channel.

Bull flag example

Reversal Patterns + Regular Divergence

Head & Shoulders

This is a bearish reversal pattern (failure swing).

No hidden divergence on the right shoulder — the trend hasn't flipped yet, so hidden bearish can't exist there. Hidden bearish only appears AFTER the trend changes to bearish.

Inverse H&S warning: An inverse H&S might just be a zag retracement, not a major bottom. Make sure it breaks through the zag zone. If buyers step in at the 382-618 but don't break through, it could just be a corrective bounce.

Fractals: Each wave can top with a mini H&S. Multiple small H&S combine into one large H&S across the full accumulation → public → excess cycle.

Head and shoulders example

Double Tops / Bottoms

Falling Wedge (ASX Trader's Favourite)

Falling wedge example

Summary: The Complete Pattern Fusion Framework

For Any Continuation Pattern

  1. Volume: Confirm the trend direction, don't confirm the corrections
  2. Hidden divergence: From the pullback pivots showing continuation
  3. Divergence → convergence on the breakout
  4. Change of market structure through the pattern boundary

For Any Reversal Pattern

  1. Volume: Don't confirm the trend direction (weakening), DO confirm the reversal direction
  2. Regular divergence: Showing the trend is weakening
  3. Divergence → convergence on the change of market structure
  4. No hidden divergence — the trend hasn't flipped yet at the pattern formation point

The Practical Takeaway

You're not trading because you see a pattern. You're trading because:

This is pattern fusion — combining the visual pattern with the underlying data (volume + divergence) to separate the genuine breakouts from the fake ones.

Moving averages, SMA & EMA

Moving Averages, SMA & EMA

Moving averages is a line that smooths out the price and can help gauge the general market direction

Moving averages are best used as a point of confluency and not as a single decision point (does the MA hit a zag zone or point of heavy resistance?)

The 50, 100 & 200 SMA can act as support and resistance

SMA vs EMA

SMA (Simple Moving Average) EMA (Exponential Moving Average)
Average of the price over the selected time period Average of the price with more weight on the recent price
Best for long-term trends Best for short-term trends
Slower, smoother — eliminates most fake-outs Faster, more reactive — more prone to fake-outs
More lagging Less lagging
Less volatile markets, stocks, swing/position trading Volatile markets, crypto, day trading/scalping

Why SMA for long-term? Dow Theory says ignore the noise of smaller timeframes — the primary trend is what matters. SMA's slower response suits that. EMA's faster reaction is better for volatile shorter timeframes where you need quicker signals.

Common lengths: 10, 20, 50, 100, 200 — can be applied to any timeframe.

How to Add in TradingView

Indicators → search "Moving Average Simple" or "Moving Average Exponential" → add. Double-click the line to change length and colour. Pro tip: In settings → Calculation → change timeframe from "Chart" to a fixed timeframe (e.g. "1 Month") so the MA stays consistent when you switch chart timeframes.

MA Strategies

Price Crossovers

When price crosses ABOVE the MA = bullish (like breaking through resistance). When it crosses BELOW = bearish (like breaking support). While above = uptrend. While below = downtrend.

Golden Cross / Death Cross

Not a great single strategy as moving averages are a lagging indicator

Works well in trending markets, terrible in sideways markets. S&P 500 historical data: golden crosses at trend starts (1980, 2013) gave decade-long bull runs. But a golden cross in 2007 bought the top of the GFC. Death crosses on the S&P 500 have actually marked BOTTOMS more often than tops (because by the time the lagging indicator signals, the bear market is already over).

Combine with market structure — a golden cross during a confirmed HH/HL uptrend = confluency. A golden cross during EH/EL sideways = unreliable.

Buying on Hits / Trend Identifier

General MA Information

How ASX Trader Uses Moving Averages

MAs are purely a confluency tool — just another data point, another river meeting the zone where buyers/sellers should step in. Not a standalone strategy.

Example process: Looking at a potential buy zone → check Fib retracement (Fib 500?) → check RSI divergence (bullish?) → check if a key MA is also at that same zone (100 SMA?) → if all three align at the same price area, that's three independent reasons to expect support. Add it to your trade plan checklist as another tick.

On the trade plan: "Also had the 100 SMA at the buy zone" — it's just one more piece of evidence for the judge.

MACD

General info

 

Commonly used to identify the changes in the strength, direction, momentum and direction of a trend

 

image.png

The MACD is made of 3 elements

  1. MACD line (blue - 12d minue 26d EMA)
  2. Signal line (orange - 9d EMA)
  3. Histogram - differences between the MACD & Signal line

 

Signals

 

Histogram interpretation

 

 

 

 

 

Gaps

Gaps

Why Gaps Occur

92% of gaps eventually get filled — so gaps are always good targets. If you know traders target them and they align with other areas of confluency (zag zone, S/R, Fibonacci), they're great profit-taking zones.

Types of Gaps

Gap types overview

The natural sequence within a trend: Breakaway gap (start of trend) → Runaway gap (middle, public participation) → Exhaustion gap (end, excess phase reversal). Maps directly to accumulation breakout → public participation → excess.

Common Gaps

Common gaps example

Breakaway Gaps

Breakaway gaps example

Runaway Gaps (Continuation / Measuring Gaps)

Runaway gaps example

Exhaustion Gaps

If you gap and then pivot within a few days, it's most likely an exhaustion gap

Professional Gaps (Institutional Gaps)

Fair Value Gaps (FVGs)

Fair value gaps example

Using Gaps for Confluency

Gaps are another tool for your confluency checklist — another river meeting the zone:

Market Breadth

Overview

Another simple way to check market breadth is checking sectors or large - mid - small caps (like btc against others)

AD line

image.png

Above / Below EMA Oscilator (ABO)

The ABO indicator is great to see if there is another point of divergence

image.png

Sentiment analysis

Why Is Sentiment Important?

Sentiment reflects the collective emotions of market participants which can significantly influence market behaviour and price movements. Positive sentiment can drive buying pressure and negative sentiment can push price down. By analysing sentiment, traders and investors can predict potential market turning points, identify overbought and oversold conditions.

Understanding the behaviour of RETAIL investors and their tendency to crowd to one side of the market provides valuable insights. When retail sentiment reaches extremes and you anticipate potential market reversals, traders can PREPARE more effectively (tighten a stop loss, hedging).

Historical examples like the dot-com bubble, the 2008 financial crisis, and the cryptocurrency booms and busts highlight the impact of sentiment on market trends.

Being on One Side of the Boat

When a majority of retail is bullish or bearish, the market often likes to move in the opposite direction. When everyone is bullish, most of the buying pressure has already been used up. When everyone is bearish, most people have already sold or are down so bad they are ready to capitulate.

Smart money use these extremes as signals to take the opposite position. With most investors already committed, there are fewer new entrants to continue driving the trend, leading to a reversal.

Volatility Indexes (VIX)

The VIX (Volatility Index) reflects market sentiment. It is based on the S&P500 options market over the next 30 days. Expressed as an annualised percentage. Low VIX = low volatility expected (complacency). High VIX = high volatility expected (fear).

When the VIX peaks, this has often marked the bottom of the S&P500

Ticker Measures Volatility Of
VIX S&P500 30d options implied volatility
XVI AU200 30d options implied volatility
BVIV BTC 30d options implied volatility

VIX Key Levels & Historical Examples

S&P 500 VIX extremes:

VIX breakout pattern: Down, down, down, down → breakout above a declining trendline = volatility incoming. Look for breaks above declining resistance on the VIX as a warning of a correction ahead.

Australian XVI: Same concept. Single digits = very complacent (always ends in a spike). Above 20 = fear.

BTC BVIV: Above 75-100 = extreme greed (marked November 2021 top). Below 40-50 = fear (marked January 2023 bottom, August 2023 bottom).

Sentiment Surveys

AAII Sentiment Survey

Survey of individual investors measuring bullish/bearish/neutral expectations for the next 6 months (not current sentiment — where they believe the market will be).

NAAIM Exposure Index

Represents the average exposure to US equities reported by active investment managers (professional money managers, not retail).

Smart Money vs Dumb Money Confidence

Compares institutional investor behaviour ("smart money") with retail investor behaviour ("dumb money").

Consumer Confidence Index (CCI)

The Consumer Confidence Index measures how optimistic or pessimistic consumers are regarding their expected financial situation and the overall economy. Based on surveys of a representative sample of consumers, used to predict consumer spending.

Fear & Greed Index

Two versions — CNN for stocks, Alternative.me for crypto.

Key Levels (Crypto)

Find it: Google "fear and greed index" — CNN (stocks) and Alternative.me (crypto) are the top two results.

Put-Call Ratio & Options

Put-Call Ratio

Compares the volume of put options (bearish bets) to call options (bullish bets).

Max Pain Theory

Max Pain is the price at which the largest number of option contracts expire worthless — causing maximum losses for option holders and minimum payouts for option sellers (Wall Street).

Triple Witching

Simultaneous expiration of stock options, stock index futures, and stock index options. Occurs four times a year on the 3rd Friday of March, June, September, and December.

Always be careful for major turning points around end of March, June, September, December. After expiration, people place new bets for the next quarter — these quarterlies are often inflection points.

Advanced: Sentiment Divergence

Just like price vs RSI divergence, you can get divergence between price and sentiment indicators. When sentiment and price aren't matching, something is about to change.

Bullish Sentiment Divergence

Price makes a higher low but sentiment makes a new low (more fearful than before). If prices are holding up but people are MORE scared than last time → the bearish sentiment is overextended → potential reversal upward.

Bitcoin example: June 2022 low had extreme fear (below 10 on Fear & Greed). When Bitcoin made a new low in November, Fear & Greed only dropped to ~20 — a higher low in sentiment. Why weren't we as fearful on a new price low? → Divergence → marked the actual bottom.

S&P 500 example (March 2023 banking crisis): Silicon Valley Bank collapse, extreme fear sentiment. But price printed a higher low compared to the October 2022 low. News was terrible (extreme fear), but the chart wasn't confirming it with new lows → divergence between FA/news and TA → continuation upward.

Bearish Sentiment Divergence

Price makes a new high but sentiment makes a lower high (less greedy than before). Why isn't there euphoria if we're at new highs? → The bullish sentiment is fading → potential reversal downward.

The Rule

If the news is really bad, the charts should be making new lows. If they're not → divergence. If the news is really good, the charts should be making new highs. If they're not → divergence. When FA/news says one thing but TA says another, trust the TA and look for the divergence to resolve.

This applies to individual stocks too — if terrible news comes out but the stock makes a higher low, that's bullish divergence between fundamentals and technicals.

Fibonacci extensions

Purpose: To set price targets & support/resistance levels. While Fib retracements measure where price might retrace to, extensions project where price might extend to.

Fib extension levels expressed as ratios:

Just because price hits an extension level doesn't mean you automatically sell, but it can be a stronger sell signal if you see weakness approaching or hitting the zone.

If it's a weak move (corrective wave), the C wave usually only hits 1.0 or 1.618. In a parabolic trend, switching to log scale is highly recommended.

How to Draw Extensions

Three clicks: Swing low → swing high → next swing low (for projecting upside). You're selecting from the start to the end of the correction — not just swing high to low to high.

Extension drawing example 1

Extension drawing example 2

Three click method

How Markets Move — Retracements + Extensions Together

The full cycle of using Fibonacci in a trending market:

Wave 1 (Accumulation breakout): First push up. Once it finalises, expect a deep retracement — typically down to the 618 or even 786 zone. Why deep? Nobody knows it's wave 1 yet — sentiment is still bearish, they think it's just a continuation of the downtrend.

Wave 2 (Deep zag): Comes down to the 618 zone. Once it bounces and takes out the wave 1 high, you can draw your trend-based Fib extension (bottom → top → pullback low) to project the next target. The 1.618 is the most common target for the next leg.

Wave 3 (Public participation): Extends up to the 1.618 target zone. Then you get another retracement — but this time it's typically shallower (382 or Fib 500) because the trend is now established and stronger. If wave 2 was deep, wave 4 is usually shallow (and vice versa).

Wave 4 (Shallow zag): Comes down to the 382 zone. Once it bounces and takes out the wave 3 high, draw another extension to project wave 5's target.

Wave 5 (Excess): Extends to the target, then you get the big correction of the whole move.

The Critical "Past the Zag Zone" Signal

If price comes down to the zag zone (382-618) and bounces = healthy, all good. But if it then rolls over, changes market structure, and breaks through the resistance-turned-support:

  1. You're NOT just retracing the last move — you're retracing ALL of it
  2. Get out the Fib retracement from the ENTIRE move (bottom of wave 1 to top of wave 5)
  3. Look for support in the 382-618 of the whole move
  4. Once buyers step in there + change of market structure + break back above the decline = re-entry

"The minute we go past the zag zone and resistance didn't become support, I know I'm not just retracing from here — I'm retracing all of it."

The Repeating Process

  1. Retracement to find buy zones (where will the zag end?)
  2. Extension to find targets (where will the next zig reach?)
  3. Check Fib strength (236 = very strong, 382 = strong, 500 = normal, 618 = weak)
  4. Repeat at each new zig-zag
  5. When the zag goes too deep (past the zag zone) → switch to retracing the whole move instead of just the last leg

70-80% of the time, buyers step in at the zag zone. The probabilities are in your favour. When they don't, the probabilities shift — and that's when you don't want to be trading it. Always trade probabilities — stack the chips, become the casino.

2.10 - Fibonacci clusters & extension channels

Advanced Fibonacci Clusters

In Term 1, you learned clusters from multiple retracements on different timeframes overlapping. Now you're combining retracements AND extensions at the same zone — the ultimate cluster.

What Are Advanced Clusters?

When a Fib retracement level (e.g. 382 from the whole move) aligns with a Fib extension level (e.g. 1.618 from the last ABC correction) at the same price area = extremely high-probability support or resistance zone.

You're getting two completely independent Fibonacci calculations pointing to the same price. That's not coincidence — that's the market telling you something.

Steps to Identify

  1. Identify the trend — determine the significant high and low points
  2. Draw Fib retracement from the start of the whole move to the end — mark the 382, 500, 618 zones
  3. Draw Fib extension from the last ABC correction (top → bottom → retracement high) — mark the 1.0, 1.618, 2.618 levels
  4. Find the clusters — look for where retracement and extension levels converge at the same price area

Ethereum Example — Calling the Bear Market Bottom

The educator demonstrated this on Ethereum's bear market:

  1. Price changed market structure bearish. Drew Fib retracement from the whole uptrend → identified the 382, 500, 618 as the zag zone for the entire move
  2. Price bounced off the zag zone of the last leg but then broke through → not just retracing the last move, retracing ALL of it. Switched to the full-move retracement
  3. Drew Fib extension from the ABC pattern (top → bottom → B wave retracement) → the 1.618 extension landed at the exact same price as the 382 retracement
  4. That became the high-conviction zone — the Fib cluster of 1.618 extension + 382 retracement

The bottom of Ethereum's bear market landed exactly on that cluster zone. Two independent Fibonacci calculations both pointing to the same price = the ultimate confluency.

Don't Just Put a Buy Order There

Even with a perfect cluster zone, you still need:

The cluster tells you WHERE it should turn. The indicators tell you it's WEAKENING into that zone. The market structure tells you it HAS turned. All three together = "you should be shocked when the trade doesn't go your way."

Fibonacci Extensions with Channels

Combining Fib extension targets with trend channel boundaries gives you precision take-profit zones.

How It Works

Channels = trendline + parallel line creating a range where prices oscillate. Fib extensions = projected price targets beyond a retracement. When the top (or bottom) of a channel aligns with a Fib extension level = high-probability rejection/take-profit zone.

Steps

  1. Identify the trend and draw your channel (connect higher lows for uptrend, draw parallel to form the channel)
  2. Draw Fib extension from the same trend (bottom → top → pullback)
  3. Look for convergence — where does a Fib extension level intersect with the upper or lower channel boundary?
  4. That intersection = your take-profit target

Uptrend Example

Channel drawn from higher lows with parallel at the highs. Fib extension from bottom → top → pullback showed the 1.0 level aligned with the top of the channel. That's where you'd look for rejection and take profit. Two independent methods (geometric channel + Fibonacci mathematics) both pointing to the same price.

Another Uptrend Example

Channel + Fib extension showed the 1.618 aligned with the top of the channel. Price hit the 1.618, rejected at the channel resistance, then fell out of the channel + changed market structure. Three confirmations to exit:

  1. Hit the Fib 1.618 target ✓
  2. Rejected at channel resistance ✓
  3. Changed market structure + fell out of channel ✓

"Nail in the coffin — hit all our zones, channel resistance, Fib 1.618, change of market structure. See you later."

Downtrend Example

Works identically in reverse. Channel drawn from lower highs, Fib extension projected downward. The 1.618 aligned with channel support = zone where you'd look to exit shorts or look for a reversal. When price hit the 1.618, bounced off channel support, and then changed market structure back out of the channel = trend over, look for a new direction.

Key Points

Term 2 master class

The Course Architecture — What's Non-Negotiable vs Complementary

Term 1 Weeks 1-6: THE NON-NEGOTIABLES

Everything in the first six weeks is the foundation. If you're not doing ALL of these on every trade, you're missing a beat:

  1. Pivot points → market structure identification (Week 1)
  2. Support & resistance zones (Week 2)
  3. Failure swings & non-failure swings → confirmed reversals and entries (Week 3)
  4. Volume & OBV → supporting the move, effort vs result (Week 4)
  5. RSI divergence → early warning signals (blinkers) before triggers (Week 5)
  6. Fibonacci retracements → zag zones, trend strength, targets (Week 6)

Term 1 Weeks 7-9: COMPLEMENTARY TOOLS

These add confluency but aren't essential for a trade to exist:

Term 1 Week 10: RISK MANAGEMENT

Not about your entry — it's about how small your stop loss is. A later entry with a better R:R can be more profitable than an earlier entry with a wider stop.

Term 2: ADVANCED REFINEMENT

All of Term 2 builds on the non-negotiables:

Log vs Linear — When to Use Each

Linear (default, first port of call):

Logarithmic (for long timeframes and large price ranges):

Fibonacci in Log vs Linear — BOTH Are Valid

This was a key insight from the masterclass. When applying Fib retracements:

Silver example: In linear, the 618 retracement created a major resistance cluster at one level. In log, the 618 created resistance at a different level (the percentage-based retracement). Both levels acted as genuine resistance on the chart. So drawing Fibs in both modes gives you TWO valid zones to watch.

Pro tip: To apply Fib in log scale in TradingView, open the Fib tool settings and check "log scale."

When to Switch

Phase Analysis — Equities vs Commodities

In equities (tech, financials): The public participation phase is typically the largest. Excess phase is usually smaller.

In commodities (silver, gold, uranium): The excess phase is often the biggest — bigger than public participation. Commodities tend to have blow-off tops.

The alternation rule: If public participation is very extended (long duration), don't expect excess to also be very extended. One will be extended, the other normal. You rarely get both dramatically extended.

Wave 2 Deep / Wave 4 Shallow

This alternation is important for setting expectations and targets. If wave 2 was deep (618+), expect wave 4 to be shallow (382). If wave 2 was shallow (unusual), expect wave 4 to be deeper.

Channels as Confluency

Channels (trend lines + parallel lines) provide confluence with other tools:

Three Channel Types (Preview for Elliott Wave)

  1. Base channel — drawn from the start
  2. Trend channel — drawn during the trend
  3. Final channel — drawn at the end

These will be covered in depth during Term 3.

The 50% Profit-Taking Strategy

When your trade hits the target zone:

  1. Take 50% off the table — lock in profit, remove risk
  2. Let the other 50% run — trail your stop loss and see where it goes
  3. If it continues beyond the target = bonus gains with zero risk (you've already banked profit)
  4. If it reverses = you've already taken half your profit and the trailing stop catches the rest

This removes the psychological battle of "should I sell all or hold all" — the answer is "both."

Preparing for Term 3: Elliott Wave

Everything from Term 1 and Term 2 translates directly:

What You Know What It Becomes in Elliott Wave
Accumulation Wave 1
First zag (deep) Wave 2
Public participation Wave 3
Second zag (shallow) Wave 4
Excess phase Wave 5
Correction (2 steps back) ABC correction

The internal counts work the same way — within wave 3, there's its own 1-2-3-4-5. Within that sub-wave 3, there's another 1-2-3-4-5. Fractals all the way down.

Corrections are where Elliott Wave gets really challenging — there are many different types. The course spends 4-5 weeks just on corrections because that's the hardest part.

The key thing you must feel comfortable with before starting Term 3: Accumulation → public participation → excess. If you can confidently identify the three phases, the numbering is just labelling what you already know.

Elliott Wave - General

General

When an initial pump then dump happens, how do you know if its a 1-2 or A-B?

Wave 1


Wave 2


Wave 3


Wave 4


Wave 5


Wave A


Wave B

Wave C

EW notes

if the wave 1 is very powerful, it's likely the next waves won't be as big

- wave 3 cant be the smallest, therefore wave 5 would have to be very small

EG SOL

image.png

wave 2 is usually very deep because the bag holders who bought at the top of wave 5 are looking for any opportunity to get out so they sell thinking the wave 2 is about to make a new lower low

Elliott Wave — Impulse Waves

Predictive vs Reactive TA

Everything learned previously (market structure, S/R, divergence, volume, Fibonacci) is reactive TA — adapting to real-time market conditions. Elliott Wave is predictive — identifying recurring patterns and forecasting future price movements based on crowd psychology.

Think of it like a military general: reactive TA is adapting to real-time changes in battle. Elliott Wave is studying the enemy's past behaviour to predict their next moves BEFORE the battle. The best Elliotticians combine both — they use Elliott Wave for the prediction and reactive TA (divergence, volume, S/R, market structure) for the confirmation.

Critics mock Elliotticians for adjusting wave counts. That's actually the point — you have a predicted roadmap, and when the market deviates, you adjust. The wave count tells you when you're wrong and how wrong. Having rules means you know exactly when your analysis is invalidated.

History — Ralph Nelson Elliott

Developed in the 1930s by Ralph Nelson Elliott, an accountant who observed that markets trade in repetitive cycles driven by crowd psychology. He proposed that prices unfold in specific patterns: a five-wave motive phase in the trend direction, followed by a three-wave corrective phase against it. This eight-wave cycle repeats at every scale — fractals.

Being a Certified Elliott Wave Analyst (CEWA) or Master Certified (CEWA-M) is one of the most respected credentials in technical analysis.

The Complete Cycle

One complete cycle = 8 waves:

Quick identifier: Numbers = motive (with the trend). Letters = corrective (against the trend).

The motive phase contains three types: impulse waves (most common, covered here), extended waves (covered next), and diagonal waves (covered after that).

The Five Impulse Waves

Wave 1 — The Initial Move (Accumulation)

Wave 2 — Deep Correction

Wave 3 — The Strongest Wave (Public Participation)

Wave 4 — Shallow Correction

Wave 5 — The Final Push (Excess)

The Three Cardinal Rules (CANNOT Be Broken)

Rule Description If Violated
1. Wave 2 cannot retrace more than 100% of wave 1 Wave 2 cannot go below the starting point of wave 1 — not even by one cent Wave count is invalidated — re-evaluate
2. Wave 3 cannot be the shortest Wave 3 doesn't have to be the longest, but it cannot be shorter than BOTH wave 1 and wave 5 Wave count is invalidated — re-evaluate
3. Wave 4 cannot overlap wave 1 Wave 4 cannot enter the price territory of wave 1 (exception: diagonal patterns) If not a diagonal, wave count is invalidated

Additional Guidelines (Common But Not Mandatory)

Wave Extension: Usually one impulse wave (typically wave 3) will be significantly longer than the others. ~80-90% of impulse waves have at least one extended wave.

Truncation: Wave 5 sometimes fails to surpass wave 3 — creates a double top before reversing. Still a valid 5-wave count, just with a truncated wave 5.

Channels: Impulse waves often fit within parallel trend channels. Drawing a channel from wave 1 to wave 2, parallel to wave 3, can help identify wave 4 targets and wave 5 projections.

Alternation Rule: If wave 2 is simple/sharp (deep zigzag), expect wave 4 to be complex/sideways (flat, triangle). If wave 2 is complex, expect wave 4 to be simple. They should NOT look the same. This helps you anticipate what type of correction wave 4 will be based on what wave 2 looked like.

Fibonacci Targets for Each Wave

Wave 1 Targets

Wave 2 Retracement Levels

Wave 3 Extension Targets (from wave 1)

Wave 4 Retracement Levels (of wave 3)

Wave 5 Targets

Tips for Recognising Impulse Waves (Shane's Guide)

  1. Wave 2 is usually steep — the retracement looks quite sharp and strong
  2. Wave 3 is very easy to recognise — almost always increased volume, gaps, bullish technical indicators. Looks very sharp and strong with a high slope. The centre of wave 3 seems to have "vertical" signs
  3. Wave 4 makes a shallow retracement compared to wave 3. Seems to take longer, and the retracement is not as deep or strong as wave 2
  4. Wave 5 is less powerful and steeper than wave 3. Easier to find because it takes longer and moves shorter. Comes after wave 4 (the shallow, time-consuming correction)

Strategy: Focus on Corrections

The strategy is NOT to trade the impulse waves directly — it's to focus on corrective waves (waves 2, 4, and ABC), because those are the SIGNALS that tell you when to enter for the next motive wave. Identify how corrections develop, wait for them to complete, then position for the next impulse.

"Following these corrective waves, there are always opportunities with the next Motive Waves. So our strategy is to focus on corrective waves — they will be Signals for us to trade."

Elliott Wave — Extended Waves

One of the impulse waves (1, 3, or 5) is almost always significantly longer than the other two. That's the extended wave. Identifying which wave is extended changes your targets, your expectations, and your entire trade plan.

What Are Extended Waves?

An extended wave is an impulse wave that is significantly longer than the other two impulse waves in the same sequence. It travels a greater distance and takes more time to complete. Extensions typically display strong, rapid price movement with high volume and have clear internal subdivisions (their own 1-2-3-4-5 within the extended wave).

Most impulse waves (~90%) have at least one extended wave. Extensions typically occur in only one of the three actionary subwaves. When the extension is so pronounced that its subdivisions are nearly the same size as the other four waves, you get a 9-wave sequence instead of the normal 5. In those cases, it can be difficult to identify which wave extended — but under Elliott Wave rules, a count of 9 and a count of 5 have the same technical significance.

Which Wave Typically Extends?

Market Type Most Common Extension Why
Equities & Forex Wave 3 Public participation — everyone recognises the trend and piles in. Highest volume, most vertical
Commodities Wave 5 Supply/demand dynamics, speculative demand, blow-off tops. Gold, silver, lithium, uranium all tend to have extended wave 5s
Emerging Tech / Low Market Cap Wave 1 Rare. Explosive initial move — new technology, very low market cap, massive fundamental shift. Bitcoin's early moves are a good example

The Three Cardinal Rules Still Apply

Every rule from standard impulse waves applies to extended waves AND their internal subdivisions. You need to verify rules at BOTH levels:

  1. Wave 2 cannot retrace beyond wave 1's start — in the big picture AND within the extension
  2. Wave 3 cannot be the shortest — in the big picture AND within the extension
  3. Wave 4 cannot overlap wave 1 — in the big picture AND within the extension (exception: diagonals)

Wave 1 Extension

Rarity: Least common. Typically seen in emerging technologies (Bitcoin, new IPOs), very low market cap situations, or major fundamental shifts that cause an immediate explosive move.

What it looks like: 9 sub-waves making up wave 1, then relatively short waves 3 and 5 of equal length.

Fibonacci rules:

Wave 3 Extension

Frequency: Most common extension in equities and forex. This is your public participation phase — the heart of the trend.

What it looks like: Wave 3 has clear internal subdivisions (its own 1-2-3-4-5), is the most vertical portion of the chart, has the highest volume, and often shows gaps and bullish technical indicators. The centre of wave 3 looks nearly vertical.

Fibonacci targets for the extended wave 3:

Other relationships when wave 3 extends:

After the impulse completes: The subsequent ABC correction will typically return to the territory of the extended wave 3 (i.e. the correction targets the area within the wave 3 extension).

Wave 5 Extension

Frequency: Second most common overall. Most common in commodities (gold, silver, lithium, uranium) due to their cyclical nature and speculative demand.

What it looks like: 9 sub-waves making up wave 5. It just keeps going up day after day — "these are the ones you wish you had in your portfolio." Waves 1 and 3 are normal (not extended). Often accompanied by divergence on momentum indicators early on, but then the divergence gets invalidated because the move is so powerful.

The blow-off top: Wave 5 extensions characteristically end in a blow-off top — rapid, unsustainable price increase followed by a sharp reversal. After the blow-off top, price can drop 20-30%+ in a single day. You do NOT want to be holding bags when a wave 5 blow-off ends.

Fibonacci targets for the extended wave 5:

After the impulse completes: The correction after a wave 5 extension is typically severe. At minimum it returns to the territory of the wave 4 (within the extension), but often it retraces much further — sometimes wiping out the entire impulse move.

Commodities and divergence: In commodities with very extended wave 5s, divergence that appeared between waves 3 and 5 gets eventually invalidated because the wave 5 extension runs so hard. This is why divergence on its own isn't enough — you always need the change of market structure to confirm.

Extensions Within Extensions

Extensions can nest inside each other. In equities, the third wave of an extended third wave is often also extended — this is called "the third of the third." It's the most powerful, vertical section of the entire move.

In commodities, you can get a fifth wave extension of a fifth wave extension — the blow-off top within the blow-off top.

Sometimes you won't see the deeper subdivisions on the daily chart, but you'll find them on the hourly or 4-hour chart. The extension within the extension doesn't need to be visible on every timeframe.

Shane's Counting Secret — When Your Count Breaks the Rules

When you're counting and your wave 3 appears to be the shortest or your wave 4 overlaps wave 1, don't panic — relabel as an extension:

Incorrect count: Wave 1 up, wave 2 down, wave 3 up (but shorter than 1), wave 4 down (overlapping wave 1), wave 5 up → RULES BROKEN

Correct relabelling: What you labelled as waves 1 through 5 is actually just waves (1) and (2) of a larger extended wave 3. The "wave 3" you identified is actually just the start of the extension's internal count.

"Don't hesitate to get into the habit of labelling the early stages of third wave extensions." When your count doesn't work, the answer is almost always that you're inside an extension and need to adjust your degree.

Key insight: The corrective waves within an extension (sub-waves 2 and 4) tend to be smaller than the corrective waves of the original impulse. If sub-wave 2 of the extension is larger than the main wave 2, it's less common but not impossible — no rules are broken, it's just unusual.

Practical Tips

Use line charts when the candles are confusing. Switch from candlestick to line chart to see the wave structure more clearly. The waves become much easier to identify.

Start by finding the obvious waves first. Don't try to count from wave 1 upward. Instead, find wave 2 (the deepest retracement) and wave 4, then look for divergence between waves 3 and 5. Build your picture from the anchor points outward.

Channels for extensions:

Ideal retracement zones:

Motive waves = 20% of the work, corrections = 80%. Impulses and extensions are the relatively easy part of Elliott Wave. Corrections are where it gets complex (zigzags, flats, triangles, combinations). The course spends most of its remaining time on corrections.

One big wave. If you have an extended wave, you usually won't have another etended wave as most of the "power" will have been used up by the extension and the next waves will usually be shorter then normal.

Elliott Wave — Diagonal Waves

The second type of motive wave. Unlike impulses, diagonals allow wave 4 to overlap wave 1 — the one exception to the golden rule. They form wedge-shaped patterns and always appear at the BEGINNING or END of a move, never the middle.

What Are Diagonals?

Diagonals are wedge-shaped five-wave patterns that belong to the motive phase (they move in the direction of the primary trend), but they are NOT impulse waves. The key distinction: wave 4 is allowed to overlap wave 1 in a diagonal. This is the only time that overlap rule is broken.

If you're counting and see a five-wave structure with overlap between waves 1 and 4, don't panic — it's probably a diagonal, not an invalid impulse count.

Where Can Diagonals Appear?

Diagonals either begin something or end something. They cannot appear in the middle of a move.

Type Position What It Signals
Leading Diagonal Wave 1 of an impulse, or Wave A of a zigzag Beginning of a new trend
Ending Diagonal Wave 5 of an impulse, or Wave C of a correction End of a trend / exhaustion

You can also get a diagonal on the wave 5 WITHIN a larger wave (e.g. wave 5 of wave 3), but the principle holds — it's ending that sub-wave.

Two Shapes: Contracting vs Expanding

Contracting diagonal: Widest at the start, narrowest at the end — looks like a falling/rising wedge. Wave 1 is the longest, wave 5 is the shortest. The more common type.

Expanding diagonal: Narrowest at the start, widest at the end — looks like a crocodile mouth or megaphone. Wave 1 is the shortest, wave 5 is the longest. Less common but powerful.

Internal Structure

Each wave within a diagonal can subdivide as either:

Both are valid. The 3-3-3-3-3 pattern means every sub-wave within the diagonal is corrective in nature (ABC, ABC, ABC, ABC, ABC), which is why diagonals look choppier and less impulsive than standard impulse waves.

Contracting Diagonal Rules

Leading (Wave 1 or Wave A)

Rule Description
Wave 1 is the longest Sets the size — everything after is smaller
Wave 3 can't be the shortest Same as standard impulse rule
Wave 5 must be the shortest Because wave 1 is longest and wave 3 can't be shortest → wave 5 is shortest
Wave 2 can't go past wave 1's start Standard rule
Wave 3 breaks past wave 1's end This is the overlap — wave 3 enters wave 1 territory (allowed in diagonals)
Wave 4 usually breaks past wave 1's end More overlap — normal for diagonals
Wave 5 can truncate Wave 5 may fail to surpass wave 3
Wave 2 can't be a triangle Internal structure rule

After a leading diagonal completes: Expect a correction (wave 2 or wave B), then a powerful wave 3 or wave C in the same direction. Leading diagonals are the beginning of something — often something big.

Ending (Wave 5 or Wave C)

Same structural rules as the leading version, but it appears at the END of a move. After an ending contracting diagonal completes, expect a sharp reversal in the opposite direction — the entire trend is exhausted.

Expanding Diagonal Rules

Leading (Wave 1 or Wave A)

Rule Description
Wave 1 is the shortest Opposite of contracting — starts small
Wave 3 can't be the shortest Standard rule — and wave 3 is longer than wave 1 but shorter than wave 5
Wave 5 is the longest The final wave is the biggest push
Wave 2 can't go past wave 1's start Standard rule
Wave 4 can't go past wave 2's end Keeps the expanding structure valid
Wave 4 is longer than wave 2 Corrections get bigger as the pattern expands
Wave 5 always ends beyond wave 3 No truncation allowed — wave 5 must be the longest
Wave 5 can overshoot or undershoot the trendline These are called throw overs

Expanding leading diagonals are considered riskier than contracting ones, but when they work, they signal the start of a major move.

Ending (Wave 5 or Wave C)

Same expanding structure but at the END of a move. After completion, expect a sharp reversal of the entire preceding trend.

Jesse Livermore's Accumulation Cylinder

The expanding leading diagonal is the same pattern Jesse Livermore called the accumulation cylinder — one of the earliest technical analysis concepts. Livermore identified this expanding wedge shape at the beginning of major trends: wave 1 (small), wave 3 (bigger), wave 5 (biggest) → then the breakout into wave 3 of the larger degree.

Apple on the monthly chart is one of the most famous examples — an expanding leading diagonal formed wave 1 before the stock went on its massive multi-year run. The S&P 500's historical yearly chart shows the same pattern at the start of the secular bull market.

If you ever see that crocodile mouth pattern at the start of a move, it could be the beginning of something very powerful.

Throw Overs

A throw over occurs when wave 5 of a diagonal briefly pushes beyond the trendline connecting waves 1 and 3 (in a contracting diagonal) or waves 2 and 4, before reversing dramatically.

Three outcomes for wave 5 at the trendline:

  1. Falls short (truncation) — doesn't reach the trendline
  2. Touches the trendline — standard completion
  3. Goes beyond the trendline — throw over

Throw Over Characteristics

Bear market example: A falling wedge (contracting ending diagonal) with a throw under — price breaks below the wedge, triggers stop losses on everyone buying the falling wedge, then reverses sharply back up through the entire pattern. Classic stop-loss hunt before the real reversal.

Real Chart Examples

Bitcoin COVID bottom: Leading contracting diagonal formed the base → wave 1, 2, 3, 4, 5 with overlap → ABC correction → then wave 3 took off massively

Bitcoin top (2021): Ending diagonal at the top of the entire move → wave 1, 2, 3, 4, 5 with overlap in a rising wedge → followed by the bear market correction

Bitcoin also had an ending diagonal in the C wave of the correction — same pattern but within the corrective phase, ending the C wave before the next impulse up

South32: Expanding leading diagonal → wave 1 smallest, wave 5 longest → crocodile mouth → then correction and takeoff

Apple monthly: Expanding leading diagonal formed wave 1 of the entire secular trend → one of the most famous examples in markets

S&P 500 yearly (log): Expanding leading diagonal at the very beginning of the long-term bull market → deep wave 2 retracement (786) → then the massive wave 3 followed

Quick Reference

Feature Contracting Expanding
Shape Wedge narrowing to apex Crocodile mouth widening
Wave 1 Longest Shortest
Wave 5 Shortest Longest
Truncation Possible on wave 5 Not possible (wave 5 must be longest)
Throw overs Can happen Can happen
More common? Yes No (but more powerful when it appears)
Where found Leading (wave 1/A) or Ending (wave 5/C) Leading (wave 1/A) or Ending (wave 5/C)

Elliott Wave — Corrections: Zigzags

Moving from the motive phase to the corrective phase. Corrections are where Elliott Wave gets hard — 80% of the difficulty. Zigzags are the first and most common corrective pattern.

The Corrective Phase — Overview

The complete Elliott Wave cycle is 8 waves: five motive (1-2-3-4-5) + three corrective (A-B-C). Everything covered so far — impulses, extensions, diagonals — was the motive phase. Now we unpack how markets correct.

Critical Misconception: Waves A and C Are Impulse Waves

Most people don't realise that waves A and C are impulse waves. They must subdivide into five waves and follow ALL the same rules as waves 1, 3, and 5 (wave 2 can't retrace past wave 1, wave 3 can't be shortest, wave 4 can't overlap wave 1 — unless it's a diagonal). They can also be extended or form diagonals.

Only waves 2, 4, and B are corrective waves (moving against the prevailing trend).

This is important because when price drops in five waves (not three), it's likely a wave A — not just a pullback. If it only drops in three waves, it's probably corrective within the trend. Fives = impulse direction. Threes = corrective.

The one exception: leading diagonals can move in waves of three (3-3-3-3-3), which can look corrective but are actually motive. That's what makes them tricky in real time.

Zigzag Correction (5-3-5)

A zigzag is a sharp three-wave corrective pattern labelled A-B-C, structured as five-three-five:

If the structure isn't five-then-three-then-five, it's not a zigzag.

Key Characteristics

Fibonacci Targets for Wave C

Use the trend-based Fib extension tool: click from the start of wave A → end of wave A → end of wave B → project forward.

Ratio Description Frequency
1:1 Wave C equals wave A in length — "partner leg" Most common
1.272 Slight extension beyond wave A Common
1.618 Wave C = 1.618 × wave A — stronger correction (golden ratio) Very common
0.618 Wave C shorter than wave A — more common when wave B is shallow (e.g. triangle) Less common
2.0 Significant extension Uncommon
2.618 Extreme extension — really powerful bear moves Rare (tech bubble, major crashes)

Rule of thumb: Always check the 1:1 first, then the 1.618. These are your two primary targets. If wave B was a shallow correction (like a triangle), the 0.618 becomes more probable for wave C.

Real Examples

ABC Personality — What Each Wave Feels Like

Understanding the psychological character of each wave helps you confirm your wave count. If the sentiment doesn't match, your count might be wrong.

Wave A — "It's Just a Pullback"

Wave B — "Told You So"

Wave C — "Oh No"

Matching Sentiment to Wave Count

The Distinction: Corrective or Impulsive?

The hardest question in real time: is this move corrective (ABC about to end) or impulsive (wave 1-2 of a new trend)?

After a zigzag completes: You don't know if you're getting wave 3 in the same direction (it was just a correction within the trend) or if the ABC was the entire correction and the trend resumes.

How to tell:

Zigzags in Both Directions

Bullish zigzag (in a bear market correction): Five waves UP for A, three waves DOWN for B, five waves UP for C — a sharp rally within a larger downtrend.

Bearish zigzag (after a bull market impulse): Five waves DOWN for A, three waves UP for B, five waves DOWN for C — the standard correction after a five-wave advance.

The structure, rules, and Fibonacci relationships are identical regardless of direction.

What's Coming Next

Zigzags are just the first type of correction. Still to come:

Corrections are where multiple possible counts exist simultaneously. Even experienced Elliotticians run 4-5 different scenarios during corrections and narrow down as the pattern develops. Impulses = relatively easy. Corrections = years of practice.

Elliott Wave — Corrections: Flats

The second type of correction. Where zigzags are sharp and fast, flats are sideways and time-consuming. Two different ways the market capitulates people — fear (zigzags) or boredom (flats).

Sharp vs Sideways Corrections

The market spends 80% of its time in corrections. Corrective patterns are time-consuming and their complexity increases as they unfold. If you can spot the END of a correction, your market timing improves dramatically.

Type Examples How It Capitulates
Sharp Zigzags, double/triple zigzags Fast, violent drops — people panic sell
Sideways Flats, triangles Drawn out over weeks/months/years — people get bored and move their money elsewhere

A sharp correction might take 10 candles to play out. A sideways correction can take 50+ candles. The most famous flat correction in history (S&P 500 tech bubble → GFC) played out over 10 years.

What Is a Flat Correction?

A flat is a three-wave corrective move labelled A-B-C, structured as 3-3-5:

How to Distinguish Flat from Zigzag

Feature Zigzag Flat
Structure 5-3-5 3-3-5
Wave A Five waves (impulse) Three waves (corrective)
Speed Sharp and fast Sideways and slow
Depth Deep retracements (618+) Shallow retracements (236-382)

Key identification trick: If wave B moves up in three waves (not five), look back — did wave A also move in three waves? If yes, you're probably getting a flat correction and wave C (five waves) is coming. Threes followed by threes = flat incoming.

Three Types of Flat Corrections

1. Regular Flat

Wave B retraces at least 90% of wave A (but doesn't exceed wave A's start). Wave C ends at or slightly past wave A's end. Produces a sideways, range-bound appearance — roughly equal highs and equal lows.

Fibonacci relationships:

Flat corrections are typically shallow in the context of the larger trend — they tend to retrace to the Fib 236 or 382 of the preceding impulse. Rarely do they reach the 618. The trend is strong enough that it just needs time to consolidate before continuing.

Famous example: S&P 500 from 2000-2009 — wave A (tech bubble crash), wave B (2003-2007 recovery that almost reached the old highs), wave C (GFC crash that took out the lows). Played out over a decade. The wave B tricked everyone into thinking the bull market was back, then wave C fell off a cliff.

2. Expanded Flat (Irregular)

Wave B extends beyond the start of wave A (takes out the high in a bull market correction). Wave C then extends substantially beyond the end of wave A (takes out the low). This is the liquidity hunter — it gets everyone on both sides.

The trap: Wave B breaks to new highs → everyone goes long (change of market structure!) → then wave C reverses and stops them all out below the lows. "Put your entry where their stop loss is."

Fibonacci relationships:

Wave C should show momentum divergence. When you see divergence on the C wave, the correction is likely ending.

Bitcoin example: Five waves up → wave A down → wave B up into the 1.272-1.382 pocket zone → wave C down to the Fib 2.0. Perfect expanded flat before continuation.

3. Running Flat

Wave B extends beyond the start of wave A (same as expanded flat — takes out the high). But wave C fails to reach the end of wave A (doesn't take out the low). The correction stays shallow — extremely bullish signal.

In a bull market: Takes out the high, doesn't take out the low. In a bear market: Takes out the low, doesn't take out the high.

Fibonacci relationships:

Wave C should still show momentum divergence. The moment wave C goes beyond wave A's end, it can no longer be a running flat — it becomes an expanded flat instead.

S&P 500 example: Leading diagonal for wave 1 → running flat correction → wave B hit the 1.272 perfectly → wave C came down to approximately 1:1 but didn't take out the low → trend continued higher.

Quick Comparison

Feature Regular Expanded Running
Wave B vs Wave A start Doesn't exceed (90%+ retrace) Exceeds (1.236-1.382) Exceeds (1.236-1.382)
Wave C vs Wave A end At or slightly past Substantially past Falls short
Takes out highs? No Yes Yes
Takes out lows? Sometimes slightly Yes (substantially) No
Bullish implication Neutral — sideways Bearish trap first Most bullish — shallow correction
Common name — Liquidity hunter —

Identifying Flats — Practical Tips

Elliott Wave — Corrections: Triangles

The third type of correction. Five-wave sideways pattern labelled A-B-C-D-E. Triangles only appear in one specific position — and that fact alone makes them one of the most useful predictive tools in Elliott Wave.

What Are Triangles?

Triangles are corrective five-wave patterns bound by converging or diverging trend lines, labelled A-B-C-D-E (letters, not numbers — because they're corrective). Each sub-wave is itself a corrective structure (typically zigzags), producing a sideways consolidation that gets progressively tighter.

Triangles are a sideways correction — they capitulate through time and boredom, not through sharp price drops.

Where Triangles Can Appear — The Golden Rule

Triangles always occur in the position prior to the final actionary wave. They can ONLY appear in:

Triangles CANNOT appear in wave 2. This is incredibly useful for predictive analysis:

"Whenever you see triangles, make sure you're taking profits at the end of them."

Three Types of Triangles

1. Contracting Triangle (Symmetrical)

Both trend lines converge — widest at the start, narrowest at the end. Each wave is progressively smaller and more contained. The most common type.

2. Barrier Triangle (Ascending / Descending)

One side is flat (horizontal support or resistance), the other side converges toward it. This is the ascending triangle (flat top, rising lows) or descending triangle (flat bottom, lower highs) you already know from classical TA — they're actually Elliott Wave barrier triangles.

The flat boundary represents supply or demand that gets repeatedly tested. Each test eats away at that supply/demand until it finally breaks through.

3. Expanding Triangle

Trend lines diverge — narrowest at the start, widest at the end. Less common.

Running triangle: A variation of the contracting triangle where wave B exceeds the start of wave A (takes out the high/low). Similar concept to a running flat — extremely bullish/bearish signal.

The Inner Waves (A through E)

Each wave subdivides into a corrective three-wave pattern. ~90% of the time they're zigzags.

Wave A — "Just a Normal Correction"

Wave B — "We're Back On"

Wave C — "Wait, What?"

Wave D — "Maybe We're in a Triangle"

Wave E — "Final Consolidation"

Triangle Characteristics

Volume: Diminishes progressively as the triangle forms — reflecting indecision. Upon breakout from wave E, volume surges, confirming resumption of the primary trend.

Alternation: Waves alternate between sharp and choppy. If wave A is a sharp zigzag, wave B might be more corrective and drifting. Wave C sharp again, wave D more relaxed.

The Thrust: After a wave 4 triangle completes, wave 5 often moves quickly and covers a distance similar to the triangle's widest part. Elliott called this the "thrust." It's usually an impulse but can be an ending diagonal. In strong markets, wave 5 after a triangle can be an extended fifth — the blow-off top.

Buyers/sellers converging: In an ascending triangle, buyers are stepping in at progressively higher levels (higher lows). In a descending triangle, sellers are stepping in at progressively lower levels (lower highs). The flat boundary is supply/demand being eaten away until it breaks.

Triangle Within a Triangle

Wave E can itself be a triangle, extending the pattern to 9 waves total (A, B, C, D, then a-b-c-d-e within wave E). This is how triangles get really drawn out.

Bitcoin bear market example (April-November 2018): Waves A, B, C, D were standard zigzags. Then wave E itself became a triangle (a-b-c-d-e), dragging the entire consolidation out to 6 months. The pattern was: zigzag, zigzag, zigzag, zigzag, triangle. Nine waves total before the final breakdown.

How People Get Fooled at Each Stage

Wave What People Think Reality
A "Normal pullback, buy the dip" First leg of the triangle
B "Trend is back! Change of market structure!" Just a corrective bounce
C "Double top? Running flat? Five waves down coming?" Nope — only three waves, then reversal
D "OK this is weird... maybe a triangle?" First time you can identify the pattern
E "Is it going to break out or break down?" Final consolidation before the thrust

Practical Trading Tips

Elliott Wave — Complex Corrections: Double Three (WXY)

When simple corrections aren't enough, the market combines them. A double three is two simple corrective patterns stitched together by a connector wave — and it's why corrections can drag on far longer than anyone expects.

Simple vs Complex Corrections

All six corrective patterns fall into two categories:

Simple (single pattern) Complex (combined patterns)
Zigzag (5-3-5) Double three / WXY (this lesson)
Regular flat (3-3-5) Triple three / WXYXZ (next lesson)
Expanded flat (3-3-5)
Running flat (3-3-5)
Triangle (3-3-3-3-3)

Simple corrections have a straightforward ABC structure. They're shorter, easier to analyse, and occur in clearer market conditions.

Complex corrections combine multiple simple corrections together using connecting waves. They're longer, more intricate, involve more waves and patterns, and typically occur in volatile or uncertain conditions requiring extended consolidation.

All a complex correction really is: multiple zigzags, flats, and/or triangles joined together.

Quick Recap — Simple Correction Characteristics

What Is a Double Three (WXY)?

A WXY is a combination of two simple corrective patterns connected by an X wave:

Key rules for what can appear where:

Position Can Be Can't Be
W Zigzag, flat Triangle (can't start with a triangle)
X Zigzag, flat, triangle — (anything goes)
Y Zigzag, flat, triangle — (triangles allowed at the end, just like wave E in a triangle)

Each of W, X, and Y is itself an ABC structure (three waves). So the overall count is ABC-ABC-ABC = nine waves of corrective movement.

How to Identify a WXY

The key identifier: the market is moving in waves of three, not five.

If the first leg down isn't five waves (so it's not a zigzag's wave A), and it's not a 3-3 setting up a flat — look for three sets of ABCs connected together. Each individual ABC is a simple correction you already know how to identify. The WXY is just those simple corrections chained.

Practical approach:

  1. See a completed ABC → that's your W
  2. See a connecting wave (smaller correction) → that's your X
  3. See another completed ABC → that's your Y
  4. Label it WXY

The "isolation" technique: If you're struggling to see the pattern, mentally isolate each section. Take the first section alone — is it a zigzag? A flat? An expanded flat? Then take the second section alone — zigzag? Flat? Triangle? If each section is a valid simple correction on its own, and they're connected by a smaller corrective wave, you've got a WXY.

Common Combinations

Any combination of simple corrections is valid. Some real examples:

Key Characteristics

Corrective nature: WXY patterns are corrective — they move sideways or counter-trend. They are NOT impulse waves.

Typically sideways: Most WXY patterns produce big drawn-out sideways consolidations. This is how you get those massive periods where price goes nowhere for months or years. However, they CAN be deep corrections too — not always sideways.

Size relationship: The X wave is usually smaller than the W and Y waves. Pattern is: bigger → smaller → bigger.

Flexibility: Because W, X, and Y can each be different types of corrections, the pattern's appearance varies enormously. This is what makes them hard to identify — no two WXY patterns look the same.

Pattern extension: Sometimes after Y completes, the market keeps correcting with another X-Z, turning the WXY into a WXYXZ (triple three). This is covered in the next lesson.

Why Complex Corrections Matter

"It's a lot easier to pick a top than to pick a bottom."

Impulse waves are relatively straightforward — five waves up, maybe an extension or diagonal, clear rules. Picking tops with divergence, volume, and market structure works well.

But corrections can be a zigzag, a flat, a triangle, a WXY, a WXYXZ, or any combination. You might think the correction ended after a WXY, then another XZ comes and it keeps going. This is why:

Practical Tips

Elliott Wave — Complex Corrections: Triple Three (WXYXZ)

The most complex corrective pattern. Three simple corrections joined by two connector waves. This is how markets go sideways for years — accumulation and distribution zones are often WXYXZ patterns.

Recap: The Six Corrective Patterns

# Pattern Type Structure
1 Zigzag Simple 5-3-5
2 Flat (regular, expanded, running) Simple 3-3-5
3 Triangle Simple 3-3-3-3-3
4 Double three (WXY) Complex Simple + X + Simple
5 Triple three (WXYXZ) Complex Simple + X + Simple + X + Simple

These are the ONLY corrective patterns that exist in Elliott Wave. Every correction you'll ever see is one of these five categories (with flats having three sub-types).

What Is a Triple Three (WXYXZ)?

A WXYXZ combines three simple corrective patterns connected by two X waves:

It's the same concept as a WXY but with one more corrective pattern bolted on. This is how you get massive, drawn-out sideways markets — corrections that span years or even a decade.

Rules for What Can Appear Where

Position Can Be Can't Be
W Zigzag, flat Triangle (can't start with a triangle)
X (first) Zigzag, flat Triangle (not at this position)
Y Zigzag, flat Triangle (middle position)
X (second) Zigzag, flat, triangle — (triangle allowed here as it precedes the final wave)
Z Zigzag, flat, triangle — (triangle allowed as the final pattern, including triangle-within-triangle for 9 waves)

General rule: The W and Y are often the same type (both zigzags or both flats). The X waves are typically smaller than the W, Y, and Z waves — alternation between long/expanded patterns and short/sharp connectors.

How to Identify a WXYXZ

The time test: If a correction is lasting far longer than previous simple corrections on the same chart, it's probably a combination. If previous zigzags and flats lasted 3-6 months and this correction has been going for 2+ years, you're almost certainly in a WXYXZ.

Compare to previous wave cycles on the same timeframe. If this correction is 5-10x longer than the simple ones, it's a combination.

The channel test: Long downward (or upward) channels that keep going wave after wave are often WXYXZ patterns. What looks like a five-wave impulse in a channel might actually be a combination of corrective waves joined together.

Key Characteristics

Prolonged consolidation: WXYXZ is all about TIME. Big money achieves capitulation through either sharp price moves (zigzags) or through exhausting time (WXYXZ). These are your massive accumulation zones and distribution zones.

Market indecision: The pattern reflects a market that can't decide its direction. Sideways, choppy, frustrating for everyone involved.

Alternation within the pattern: The individual waves typically alternate between long/drawn-out patterns and short/sharp ones. A sharp zigzag followed by a drawn-out flat followed by a quick connector followed by a triangle — mixing it up within the overall structure.

Liquidity grabs: Expanded flats and irregular flats within a WXYXZ create the "springs" and liquidity hunts you see in sideways markets. Price takes out the highs (stopping out shorts), then takes out the lows (stopping out longs), then takes out the highs again — all within one big corrective structure. Now you know why.

Real Examples

FMG (Fortescue) 2008-2018 — the textbook example: Went sideways for a full decade. The wave count: sharp zigzag down (W) → alternation to a drawn-out connector (X) → flat correction with leading diagonal (Y) → connector (X) → final move down (Z). Then the major bottom → wave 1, wave 2, wave 3 of the new bull market. A chart that looks like chaos becomes readable once you know WXYXZ exists.

Common combinations seen in real markets:

The Honest Truth About Complex Corrections

From the educator: "Don't sweat if you're confused. You're not supposed to do a 10-week course and walk out being able to count every complex correction. I still can't do these perfectly myself — and I've been doing it for three to four years. Sometimes I get them, but if you pulled up a big mess of a chart I wouldn't be able to count it there and then."

Shane (CEWA-M) spends 3-4 hours on a single chart to get the right count on complex corrections. If a Master Certified Elliott Wave Analyst needs hours, you shouldn't expect to do it in minutes.

What matters more than counting perfectly:

  1. Recognise that complex corrections exist — when you see a chart going sideways for years and wonder "what the hell is that," now you know. It's a WXYXZ
  2. Know that corrections can be prolonged — don't assume every correction is a simple zigzag. It might extend into a WXY, then further into a WXYXZ
  3. Use it for context — if you identify a massive accumulation zone as a WXYXZ, that gives you MORE reason to buy the breakout, because you know you're breaking out of a major corrective structure
  4. Focus on the END of the correction — rather than counting every sub-wave, look for change of market structure, divergence, and volume to tell you the correction is DONE. Then trade the breakout
  5. Be careful with downward channels — a five-wave move down in a channel might not be an impulse. It could be a WXYXZ combining multiple corrective waves. The fact that it's all moving in threes (not fives) tells you it's corrective

"I just see that and know it's corrective. I don't have to care about going in and doing every little count. I just know it's in a complex correction and then I'm looking for that change of market structure to get out of it."

This Completes the Corrective Phase

You now know every type of correction in Elliott Wave:

Simple Complex
Zigzag (sharp, deep, 5-3-5) Double three / WXY
Flat — regular, expanded, running (sideways, shallow, 3-3-5) Triple three / WXYXZ
Triangle (sideways, ABCDE, wave 4 or B only)

Every correction in every market on every timeframe is one of these patterns or a combination of them. Impulses are the easy 20%. Corrections are the hard 80%.

Elliott Wave — Trading Strategies

Combining predictive Elliott Wave analysis with reactive TA (divergence, volume, market structure, Fibonacci) to find high-probability entries, place intelligent stop losses, and set precise profit targets.

Stop Loss Placement Using Invalidation Levels

Elliott Wave's three cardinal rules give you exact prices where your wave count is WRONG. Use these as stop loss levels — not arbitrary percentages or arbitrary pivots.

Wave 2 Stop Loss

Place below the start of wave 1. Wave 2 cannot retrace more than 100% of wave 1. If price goes below wave 1's origin, the count is invalidated — exit.

Why not just below the wave 2 pivot? Because wave 2 might not be finished. You could get a bounce, think wave 3 has started, then price drops back for an expanded flat or deeper retracement before the REAL wave 3. By placing the stop at the wave 1 origin, you give the trade breathing room while protecting against full invalidation.

South32 example: Wave 1 completed, ABC correction for wave 2, change of market structure → entry. Stop loss goes below the wave 1 origin, not below the wave 2 pivot. If wave 2 extends into an expanded flat before wave 3, you're still in the trade.

Wave 4 Stop Loss

Place just below the top of wave 1. Wave 4 cannot overlap wave 1's price territory (in an impulse). The moment it does, the impulse count is invalidated.

Bitcoin example: Wave 1, 2, 3 identified. Wave 4 pulls back. Entry taken on change of market structure. Stop loss placed just into wave 1 territory — not below the wave 4 pivot. This gives breathing room for the correction to complete while knowing that if wave 4 enters wave 1 territory, it's corrective (ABC), not an impulse wave 4-5.

Wave 5 Stop Loss

Place below wave 4. Once wave 5 breaks above wave 3, price shouldn't return below wave 4. If it does, the structure is invalid.

ABC Correction Stop Loss (Shorting)

Place above wave B. After change of market structure to the downside (lower low, lower high, lower low), enter short with stop above B.

Only two ways this stop gets hit:

  1. Expanded flat — wave B of the larger correction exceeds wave A's start
  2. Expanded triangle — rare

Everything else (zigzags, running flats, regular flats, normal triangles) won't reach above B. So the odds are heavily stacked in your favour.

Trailing Stops as Waves Develop

Give breathing room: Don't place stops exactly at the invalidation level — add a small buffer for wicks and market noise.

Entry Strategies

Entry After Wave 2 (Best Risk:Reward)

This is the highest-value entry — you capture wave 3 (strongest) and wave 5.

How:

  1. Identify wave 1 completion and wave 2 retracement (typically deep: 50-61.8%, sometimes 78.6%)
  2. Look for wave 2 to reach the golden pocket (382-618 Fib retracement of wave 1)
  3. Wait for change of market structure out of the wave 2 low — don't buy blindly at a Fib level
  4. Optional: drop to a lower timeframe for a more precise entry on the change of market structure
  5. Stop loss below wave 1 origin (invalidation) or below wave 2 pivot (tighter, riskier)

Great Depression example: Leading diagonal for wave 1 → deep wave 2 retracement to the 786 → change of market structure back through support/resistance → entry → stop below wave 2 → ride wave 3.

Entry During Wave 4 (Moderate)

Captures wave 5 — not as strong as wave 3 but still profitable.

How:

  1. Wave 3 completed, wave 4 pulling back
  2. Wave 4 typically retraces 38.2-50% of wave 3 (shallower than wave 2)
  3. Wait for change of market structure off the zag zone
  4. Stop loss below wave 4 pivot, or partial stop there + full stop below wave 1 territory (full invalidation)
  5. If wave 4 enters wave 1 territory → 100% invalidated for an impulse, exit everything

Entry at the End of an ABC Correction (The Complete Setup)

Captures the next impulse wave after the correction ends. This is the "bread and butter" trade.

How:

  1. Five waves up completed (1-2-3-4-5)
  2. ABC correction underway — project wave C target using trend-based Fib extension (1:1 most common, 1.618 for stronger corrections)
  3. Combine C wave target with Fib retracement of the entire impulse → look for Fib cluster (e.g. Fib 500 retracement + Fib 1:1 extension at the same price)
  4. Add channel support if applicable
  5. Wait for reversal signals at the cluster zone: double bottom, bullish divergence on RSI, bullish divergence on OBV, volume declining into the low
  6. Wait for change of market structure — don't buy before the reversal confirms
  7. Stop loss below the Fib cluster zone

Apple example: Five waves up → ABC correction → Fib 500 retracement aligned with Fib 1:1 extension = Fib cluster → double bottom at the cluster → bullish divergence on RSI and OBV → change of market structure → entry at ~$1,690 with stop below → rode the entire next impulse wave.

Key principle: At the end of an ABC, you don't know if it's the start of a new impulse (wave 1-2-3-4-5) or just a zigzag (wave C completing). Take partial profits at the 1:1 extension level — if it's wave C it ends there, if it's wave 3 you still have exposure for the rest.

Profit Targets Using Fibonacci Extensions

Wave 3 Target

From: Start of wave 1 → end of wave 1 → end of wave 2 (trend-based Fib extension, three clicks)

Target When
1.618 Most common (~60-70%). First target to watch
2.618 Strong trends. Second target if 1.618 breaks
1.0 If wave 1 and 3 are equal — implies wave 5 will be the extended wave

Confirmation at target: Look for bearish divergence, rising wedge, and volume declining as price approaches the 1.618. If weakness appears at the target zone, take profit.

Apple example: Wave 3 hit the 1.618 with bearish divergence and a rising wedge into the target. Textbook profit-taking zone.

Wave 5 Target

Method 1 — 618 of waves 1+3 combined: Fib extension from start of wave 1 → end of wave 3 → end of wave 4. The 618 level is the most common wave 5 target.

Method 2 — Wave 5 = Wave 1: Use the measuring tool to copy wave 1's length and project from wave 4. Most common when wave 3 was extended.

Method 3 — 1.618 of waves 1+3: For extended wave 5s (commodities blow-off tops).

If wave 3 was already very extended, wave 5 is typically short (382 or even just a small thrust). If wave 3 was not extended, wave 5 might be the blow-off.

Wave C Target (Corrections)

From: Start of wave A → end of wave A → end of wave B (trend-based Fib extension)

Target When
1:1 Most common — wave C equals wave A ("partner leg")
1.618 Stronger corrections
0.618 When wave B was shallow (triangle)
2.618 Extreme bear markets (tech bubble)

Combine with: Fib retracement of the entire impulse + channel support for Fib clusters.

Ethereum example: ABC correction → Fib 1:1 extension aligned with channel support at ~$900 → projected target hit, signs of life appeared, reversal followed.

Triangle Breakout Target

Critical: Measure from the end of the impulse (where the trend ended before the triangle) to the end of the correction (where wave E ends) — NOT from wave A of the triangle.

This is the biggest mistake people make — they take the Fib extension from wave A instead of from where the preceding impulse ended. Because they don't understand Elliott Wave structure, their levels are wrong.

From: End of preceding impulse → start of triangle (wave 3 top) → end of wave E. Project 382, 618, or 1.0.

If wave 3 was already extended, the triangle breakout (wave 5) is often shallow — just the 382 Fib. These are the quick "thrust" moves that get immediately sold.

BNB example: Ascending triangle in wave 4 → breakout → only reached the 382 before reversing → then corrected the entire impulse.

Bitcoin bear market example: Descending triangle in wave B (with triangle-within-triangle for wave E) → C wave projected from impulse end through correction end → hit the 618 to the dollar.

The Complete Trade Process

  1. Identify where you are in the wave count (predictive TA)
  2. Project targets using Fibonacci extensions (where should the next wave go?)
  3. Wait for reactive TA confirmation at the target zone (divergence, volume, weakness signals)
  4. Wait for change of market structure (the actual trigger — don't trade signals, trade triggers)
  5. Enter with stop loss at the invalidation level (not an arbitrary level)
  6. Trail stops as waves complete, raising them to each new invalidation level
  7. Take partial profits at the first target (1:1 or 1.618), let the rest run with a trailing stop

"It's always about trying to get that ultimate confluency for where to buy or where to sell. Predictive TA gives you the roadmap. Reactive TA gives you the confirmation. Combine them together."

Elliott Wave — Market Psychology & Trading Mindset

Elliott Wave patterns are a visual representation of collective human emotion — fear, greed, optimism, despair. Understanding the psychology behind each wave helps you confirm your count AND master your own emotions as a trader.

Psychology of Each Wave

Wave 1 — Early Optimism / Smart Money Enters

Market mood: Cautious, skeptical. Coming off a bearish phase. Only the most informed traders (institutional, smart money) are buying based on improving fundamentals or technical signals. The broader market hasn't caught on.

What you see: Low volume, tentative rally. Most participants still feel bearish. When you go long, the majority will think you're wrong.

Your psychology:

Wave 2 — Profit Taking / "Is It Real?"

Market mood: Early buyers take profits. The market is still predominantly bearish. Many believe the rally was just a temporary bounce — "another lower high." Big battle between real trend change and false breakout.

What you see: Significant retracement (50-78.6% of wave 1). Skepticism increases. People sell expecting further declines.

Your psychology:

Wave 3 — FOMO / Herd Mentality

Market mood: Dramatic psychological shift from skepticism to full optimism. Previous resistance levels break. FOMO becomes prevalent. Optimism snowballs.

What you see: Substantial volume increase. Mainstream media starts reporting the rally. Retail investors and latecomers pile in. Strong economic/fundamental data reinforces the narrative. "Bitcoin is going to $1M because BlackRock..." "Uranium is taking off because nuclear plants..."

Your psychology:

Wave 4 — Caution / "Where Am I?"

Market mood: Cautious optimism. Some traders take profits after the wave 3 explosion. Confusion — many traders aren't sure if the trend is continuing or ending. Wave 4 is typically the wave where "if you don't know where you are, you're probably in wave 4."

What you see: Reduced momentum, consolidation, shallow pullback. Lower volume. Triangles, flags, sideways chop. People sitting on phenomenal gains locking some in.

Your psychology:

Wave 5 — Euphoria / Overconfidence

Market mood: Extreme bullishness. Greed and euphoria dominate. Even fundamentals may not support the continued rise — price climbs because everyone is confident it will. Mania phase. Irrational exuberance.

What you see: Speculative buying. Retail investors who missed everything buying aggressively. Fear & Greed Index at extreme greed. Sentiment indicators maxed. Divergence on RSI and OBV — momentum is weakening while price makes new highs. Rockets and moon emojis everywhere.

Your psychology:

Wave A — "Just a Dip" / Initial Disbelief

Market mood: The decline is seen as a normal pullback. Most participants still believe the uptrend is intact. Sentiment is still bullish. "Buy the dip" mentality in full force — because every other time, buying the dip worked.

What you see: Moderate selling pressure. Many still hold positions. No change of market structure yet.

Your psychology:

Wave B — Bull Trap / False Hope

Market mood: Counter-trend rally. Investors start buying again thinking the market is resuming its bullish trend. Hope and optimism that the correction was just a temporary blip. "I told you so, you idiot bears!"

What you see: Briefly bullish sentiment. Weaker rally than previous waves. Lower volume. Technical indicators fail to confirm strength. This is the right shoulder of a head & shoulders pattern.

Your psychology:

Wave C — Capitulation / "It's Over"

Market mood: Pessimism at its peak. Traders capitulate, selling at a loss. Everyone who held through A and B finally panics. "The market is done." Blood on the streets.

What you see: Impulsive five-wave decline. Sharp and rapid. Volume picks up. Fear dominates sentiment.

Your psychology:

Five Principles for Trading Psychology

1. Trust the Process

Markets move in cycles. Elliott Waves are a visual map of collective emotion — fear, greed, optimism, despair. Every rally has a correction. Every crash has its end.

2. Use Confirmations — Trade Triggers, Not Signals

The most common mistake: acting too early based on a hunch. Without confirming a wave's end through market structure, support levels, reversal patterns, and momentum indicators, you risk entering prematurely.

3. Stay Flexible

Elliott Waves aren't perfect. Markets don't always behave predictably. What looks like a clear wave 3 could become an extended wave 1. A C wave could extend into a WXY.

4. Self-Awareness — Journal Your Emotions

Elliott Waves mirror not just market psychology but YOUR psychology. Track your emotions to spot patterns that sabotage your trading.

What to journal for every trade:

What you might discover:

The three pillars of trading: Skills + Risk Management + Psychology. If you're not tracking all three, you're not doing it right.

5. Reflection Is the Key to Growth

After every trade: what worked well? What didn't? Pick ONE thing to improve next time. Small steps lead to great success.

The Synergy

Understanding how collective emotions drive market movements lets you ANTICIPATE future patterns. Mastering your personal psychology gives you the internal tools to NAVIGATE those patterns without self-destructing.

Technical mastery + psychological mastery = consistent long-term success.

Elliott Wave provides the roadmap. Your psychology determines whether you follow it or panic off course.