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Trader’s Classroom

Video: The Versatility of the Wave Principle

Timeless Trading Lesson

In the video below, EWI senior analyst and trading instructor Jeffrey Kennedy shows how the Wave Principle can help you identify a high-probability trade set up regardless of the direction of the larger trend.


This timeless educational video was taken from Jeffrey’s renowned Trader’s Classroom series and is being re-released because of its valuable lesson. If a few minutes isn’t enough, get more FREE practical trading lessons from Jeffrey Kennedy in his latest eBook.

Fibonacci Techniques for Math Geeks – and Everyone Else, Too

By Editorial Staff

The word Fibonacci (pronounced fib-oh-notch-ee) can draw either blank stares or an enthusiastic response. There’s hardly any in-between ground. But for those who ask how an esoteric mathematical relationship can apply to price charts and trading, here’s a quick lesson. Everyone who uses Elliott wave analysis will sooner or later want to try using Fibo techniques, and Elliott Wave International’s Jeff Kennedy has written about five of them in a Trader’s Classroom column. For an example of why people are so fascinated by Fibonacci, read part of Kennedy’s article here:

* * * * *

How to Apply Fibonacci Math to Real-World Trading
Have you ever given an expensive toy to a small child and watched while the child had less fun playing with the toy than with the box that it came in? In fact, I can remember some of the boxes I played with as a child that became spaceships, time machines or vehicles to use on dinosaur safaris.

In many ways, Fibonacci math is just like the box kids enjoy playing with imaginatively for hours on end. It’s hard to imagine a wrong way to apply Fibonacci ratios or multiples to financial markets, and new ways are being tested every day. Let’s look at just some of the ways I apply Fibonacci math in my own analysis.

Fibonacci Retracements
Financial markets demonstrate an uncanny propensity to reverse at certain Fibonacci levels. The most common Fibonacci ratios I use to forecast retracements are .382, .500 and .618. On occasion, I find .236 and .786 useful, but I prefer to stick with the big three. You can imagine how helpful these can be: Knowing where a corrective move is likely to end often identifies high-probability trade setups (Figures 7-1 and 7-2).

figure 7-1

figure 7-2

Kennedy then goes on to explain Fibonacci extensions, circles, fans and time, using 11 charts to show what he means. Whether or not you are a math geek, you can learn a lot from this six-page introduction to Fibonacci math.

Get Your Fibonacci Techniques Right Here. Jeffrey Kennedy has been using and teaching these techniques for years, and he has written a quick description of five Fibonacci techniques in his Trader’s Classroom column — now available to you for free by signing up as a Club EWI member. Read more about the 6-page report here.

Elliott Wave International (EWI) is the worlds largest market forecasting firm. EWIs 20-plus analysts provide around-the-clock forecasts of every major market in the world via the internet and proprietary web systems like Reuters and Bloomberg. EWIs educational services include conferences, workshops, webinars, video tapes, special reports, books and one of the internets richest free content programs, Club EWI.

How the Elliott Wave Principle Can Improve Your Trading

The Wave Principle identifies trend, countertrend, maturity of a trend — and more.

By Editorial Staff
The following article is an excerpt from Elliott Wave International’s Trader’s Classroom Collection.

Every trader, every analyst and every technician has favorite techniques to use when trading. But where traditional technical studies fall short, the Wave Principle kicks in to show high probability price targets and, just as importantly, how to distinguish high probability trade setups from the ones that traders should ignore.

Where Technical Studies Fall Short
There are three categories of technical studies: trend-following indicators, oscillators and sentiment indicators. Trend-following indicators include moving averages, Moving Average Convergence-Divergence (MACD) and Directional Movement Index (ADX). A few of the more popular oscillators many traders use today are Stochastics, Rate-of-Change and the Commodity Channel Index (CCI). Sentiment indicators include Put-Call ratios and Commitment of Traders report data.

Technical studies like these do a good job of illuminating the way for traders, yet they each fall short for one major reason: they limit the scope of a trader’s understanding of current price action and how it relates to the overall picture of a market. For example, let’s say the MACD reading in XYZ stock is positive, indicating the trend is up. That’s useful information, but wouldn’t it be more useful if it could also help to answer these questions: Is this a new trend or an old trend? If the trend is up, how far will it go? Most technical studies simply don’t reveal pertinent information such as the maturity of a trend and a definable price target — but the Wave Principle does.

How Does the Wave Principle Improve Trading?
Here are five ways the Wave Principle improves trading:

1. Identifies Trend – The Wave Principle identifies the direction of the dominant trend. A five-wave advance identifies the overall trend as up. Conversely, a five-wave decline determines that the larger trend is down. Why is this information important? Because it is easier to trade in the direction of the overriding trend, since it is the path of least resistance and undoubtedly explains the saying, “the trend is your friend.” Simply put, the probability of a successful commodity trade is much greater if a trader is long Soybeans when the other grains are rallying.

2. Identifies Countertrend – The Wave Principle also identifies countertrend moves. The three-wave pattern is a corrective response to the preceding impulse wave. Knowing that a recent move in price is merely a correction within a larger trending market is especially important for traders, because corrections are opportunities for traders to position themselves in the direction of the larger trend of a market.

3. Determines Maturity of a Trend – As Elliott observed, wave patterns form larger and smaller versions of themselves. This repetition in form means that price activity is fractal, as illustrated in Figure 1. Wave (1) subdivides into five small waves, yet is part of a larger five-wave pattern. How is this information useful? It helps traders recognize the maturity of a trend. If prices are advancing in wave 5 of a five-wave advance for example, and wave 5 has already completed three or four smaller waves, a trader knows this is not the time to add long positions. Instead, it may be time to take profits or at least to raise protective stops.

Since the Wave Principle identifies trend, countertrend, and the maturity of a trend, it’s no surprise that the Wave Principle also signals the return of the dominant trend. Once a countertrend move unfolds in three waves (A-B-C), this structure can signal the point where the dominant trend has resumed, namely, once price action exceeds the extreme of wave B. Knowing precisely when a trend has resumed brings an added benefit: It increases the probability of a successful trade, which is further enhanced when accompanied by traditional technical studies.

Read the rest of this 5-page Trader’s Classroom Collection lesson now, free! Learn more here.Here’s what you’ll learn:

  • How the Wave Principle provides you with price targets
  • How it gives you specific “points of ruin”: At what point does a trade fail?
  • What specific trading opportunities the Wave Principle offers you
  • How to use the Wave Principle to set protective stops
  • Keep reading this free lesson now.

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Download for free now: 14 Critical Lessons Every Trader Should Know


Our friends over at Elliott Wave International have brought back one of their most sought after free resources for one week only. The Best of Trader’s Classroom eBook serves up the very best lessons from their popular — and expensive — Trader’s Classroom Collection in one valuable 45-page report. If you aren’t one of the thousands who downloaded this valuable resource in its original release, don’t miss out on this rare second chance. The Best of Trader’s Classroom eBook is free through February 16. Learn more and download your free report now..


Sometimes I wonder how my pals over at Elliott Wave International ever make any money — they give so much valuable trading education away for free.

They’ve compiled 14 of the very best lessons from their Trader’s Classroom Collection of eBooks (retails for $189) and put them in one incredibly valuable 45-page report. What’s more — they’re letting people download these lessons for free.

Some of the most interesting chapters include:

  • Why Emotional Discipline is Key to Success
  • When to Place a Trade
  • How to Use Bar Patterns To Spot Trade Setups
  • How To Calculate Fibonacci Projections
  • The Best Place for High-Opportunity Trade Setups
  • You’ll find several more fascinating lessons — 14 in all — at the link below.

I highly recommend you give this free report a look – this opportunity is only available through February 16. I suggest you jump at this chance to put these essential trading lessons in your library while they’re free.

Go here to download them now.