The importance of detecting the first impulse wave is to recognize the beginning of a new trend, whether bullish or bearish, this will help us when deciding to open a purchase position for example in the case of the start of a impulse wave bullish.
If, on the contrary, it is a first wave of bearish impulse will be useful to get out of our position through either a sale if we have bought. Or it will also help us take into account a purchase in the case we want to buy, taking advantage of the bearish trend that starts.
Everything will depend on the position we have taken, the moment in which we have opened the position is important to decide when to leave too, and influence our profits or level of loss.
how to identify a good point to establish a purchase and sale order?
A good point to establish a purchase order is when we visualize what can be a first wave of impulse.
To introduce the sales or exit order, we must establish a stop loss, which is the limit of losses that we are going to establish, how many are willing to lose in case the market is going down, this limit should not be very high to Let us take us out very soon. It will be established below the lowest point that formed the first wave of impulse.
To establish the Take Profit, or profits, this limit will be established not too above, but just when the last corrective wave ends and indicated by the end of the trend. Obviously, we can not predict if the trend will then be bullish, but we do this procedure to take profits at an acceptable point.
The relationship of Elliott's wave theory
Elliot's theory of waves are useful when it comes to understanding in which phase the market is, as well as the trend, if the trend is identified, decisions can be made in this regard. The first phases before the first wave occurred are important, in this phase the accumulation occurs and it is the conducive moment in which the large investors prepare for the upward trend, since these can influence and manipulate the market.
Elliot's wave theory will inform us about what is happening. When corrective waves are produced, it is an important time to take the profit, because generally when they occur it is because the big investors have left their positions leaving the market.
Then it is important to know this theory to be aware of the decisions to be made regarding our positions.
It is important for those in the world of trading to know how professionals think. Trading has its method and there are many elements to take into account when performing our analysis. The fundamental analysis is important in addition to the technical analysis because it is the one that gives us a global vision about the asset we are analyzing.
On the other hand we must take into account the existence of the big investors and their ability to manipulate the market when making their interventions, which can make dramatic changes in a scenario that we had completely analyzed.
If we have the knowledge and we also have an entry and exit plan of the market, our participation will be much more satisfactory than if we do not have it, hence the importance of knowing the basic trading tools, by acting in this way we will not be to mercy of our emotions because we will have a plan with which to act.