Elliott Wave with Supertrend Exit - Strategy [presentTrading]

2023년 8월 14일

## Introduction and How it is Different

The Elliott Wave with Supertrend Exit provides automated detection and validation of Elliott Wave patterns for algorithmic trading. It is designed to objectively identify high-probability wave formations and signal entries based on confirmed impulsive and corrective patterns.
* The Elliott part is mostly referenced from Elliott Wave by LuxAlgo

Key advantages compared to discretionary Elliott Wave analysis:
- Wave Labeling and Counting: The strategy programmatically identifies swing pivot highs/lows with the Zigzag indicator and analyzes the waves between them. It labels the potential impulsive and corrective patterns as they form. This removes the subjectivity of manual wave counting.
- Pattern Validation: A rules-based engine confirms valid impulsive and corrective patterns by checking relative size relationships and fib ratios. Only confirmed wave counts are plotted and traded.
- Objective Entry Signals: Trades are entered systematically on the start of new impulsive waves in the direction of the trend. Pattern failures invalidate setups and stop out positions.
- Automated Trade Management: The strategy defines specific rules for profit targets at fib extensions, trailing stops at swing points, and exits on Supertrend reversals. This automates the entire trade lifecycle.
- Adaptability: The waveform recognition engine can be tuned by adjusting parameters like Zigzag depth and Supertrend settings. It adapts to evolving market conditions.


ETH 1hr chart
https://www.tradingview.com/x/v56Pglcq/

In summary, the strategy brings automation, objectivity and adaptability to Elliott Wave trading - removing subjective interpretation errors and emotional trading biases. It implements a rules-based, algorithmic approach for systematically trading Elliott Wave patterns across markets and timeframes.

## Trading Logic and Rules

The strategy follows specific trading rules based on the detected and validated Elliott Wave patterns.

Entry Rules

- Long entry when a new impulsive bullish (5-wave) pattern forms
- Short entry when a new impulsive bearish (5-wave) pattern forms

The key is entering on the start of a new potential trend wave rather than chasing.

Exit Rules

- Invalidation of wave pattern stops out the trade
- Close long trades on Supertrend downturn
- Close short trades on Supertrend upturn
- Use a stop loss of 10% of entry price (configurable)

Trade Management

- Scale out partial profits at Fibonacci levels
- Move stop to breakeven when price reaches 1.618 extension
- Trail stops below key swing points
- Target exits at next Fibonacci projection level

Risk Management

- Use stop losses on all trades
- Trade only highest probability setups
- Size positions according to chart timeframe
- Avoid overtrading when no clear patterns emerge



## Strategy - How it Works

The core logic follows these steps:

1. Find swing highs/lows with Zigzag indicator
2. Analyze pivot points to detect impulsive 5-wave patterns:
- Waves 1, 3, and 5 should not overlap
- Waves 3 and 5 must be longer than wave 1
- Confirm relative size relationships between waves
3. Validate corrective 3-wave patterns:
- Look for overlapping, choppy waves that retrace the prior impulsive wave
4. Plot validated waves and Fibonacci retracement levels
5. Signal entries when a new impulsive wave pattern forms
6. Manage exits based on pattern failures and Supertrend reversals

Impulsive Wave Validation
The strategy checks relative size relationships to confirm valid impulsive waves.
For uptrends, it ensures:

```
Copy code- Wave 3 is longer than wave 1
- Wave 5 is longer than wave 2
- Waves do not overlap

```
Corrective Wave Validation
The strategy identifies overlapping corrective patterns that retrace the prior impulsive wave within Fibonacci levels.

Pattern Failure Invalidation
If waves fail validation tests, the strategy invalidates the pattern and stops signaling trades.



## Trade Direction

The strategy detects impulsive and corrective patterns in both uptrends and downtrends. Entries are signaled in the direction of the validated wave pattern.



## Usage

- Use on charts showing clear Elliott Wave patterns
- Start with daily or weekly timeframes to gauge overall trend
- Optimize Zigzag and Supertrend settings as needed
- Consider combining with other indicators for confirmation

## Default Settings

- Zigzag Length: 4 bars
- Supertrend Length: 10 bars
- Supertrend Multiplier: 3
- Stop Loss: 10% of entry price
- Trading Direction: Both