TRADING THE RIGHT PATH STRATEGY (TRP) GUIDES
The Most Effective Trading Strategy Guidelines Based on Elliott Wave Theory
Table of Contents
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1. Trading The Right Path Strategy
Our Trading The Right Path Strategy has a set of rules and guidelines that help you decide when to buy and sell in the markets. We have categorized trading strategies in the following ways:
Trading The Right Path
Strategy implementation
1) Trading The Right Path
Understanding the correct direction in the time frames we trade can help us make fewer mistakes. Trading in the right direction increases our chances of success. It’s important to identify and trade in the right direction.
Identifying and trading the Right path
- Swing Counts and Sequences
- Fibonacci: Extensions and Retracement
- Cycles
- Relative Strength Index (RSI)
- Correlation
I. Swing Counts and Sequences
An Impulse Sequence
Impulse Sequence Waves that move in a sequence with increments of 4, such as 5, 9, 13, 17, 21, 25, and so on, swing. The sequence remains incomplete until it reaches the numbers: 5, 9, 13, 17, 21, and 25.
A Corrective Sequence
Corrective sequence waves move in a sequence of 3-7-11 swings, and so on. It can occur in both trending and correcting markets.
Zigzag (ABC) (flat, ABC) -triangles, (ABCDE) double threes (WXY) and triple threes (WXYZ)
A sequence can be completed as follows: 3-7-11-15-19-23, with increments of 4. The sequence is incomplete until it reaches numbers above 3-7-11-15.
II. Fibonacci: Extensions and Retracement
We position our buying or selling area at the extremes, where buyers and sellers agree that the old sequence ends and the new one must begin.
In the extreme area trade, known as hedging, buyers and sellers either make three waves after five waves or make three waves after three waves. Typically, the hedging happens at the 100% or 1.236 Extension. of three, seven, and eleven swings.
Zigzag patterns, also known as ABC corrections, include double threes represented by WXY and triple threes denoted by WXYZ.
We also need to verify this hedging area using the following Fibonacci retracements:
23.6%–38.2% are used for wave 4.
50%–61.8% is used for wave 2.
85.4% (deep retracement) can be wave 2, a FLAT.
III. Cycles
When a cycle is in progress, the trend within it remains the same. A clear cycle consists of either 5 waves or a corrective cycle with swings like 3-7-11-15-19 swings, and so on.
A bullish impulse structure consists of higher highs (HH) and higher lows (HL) in a sequence of 1-2-3-4-5. This structure can represent one bullish cycle in the long term, five cycles in the medium term, and seventeen cycles in the short term.
A corrective bullish cycle consists of higher highs (HH) and higher lows (HL) in a pattern like WXY. For example, this could represent one bullish cycle in the long term, three cycles in the medium term, and seven cycles in the short term.
A bullish cycle is characterized by a sequence of higher highs and higher lows.
A bearish cycle follows a sequence of lower highs and lower lows.
A cycle typically ends after 3 swings, reaching 100%–123.6%.
After a cycle ends, anticipate a correction in 3, 7, or 11 swings.
Market cycles can be identified within the RSI and by trend line crossings.
Differentiate between Cycle and Sequence
Cycles are components of sequences. Cycles involve both advancement and decline, forming sequences. The motive sequence follows 5-9-13-17~21, while the corrective sequence follows 3-7-11-15.
Differentiate between Structure and Sequence
Structures can be either impulse or corrective sequences. When we refer to a structure in general, it indicates that the movement has already finished or is expected to finish soon, like impulse waves 5, 9, 13, or 17 (main diagonal, final diagonal, impulse extension) or corrective patterns such as ABC, WXY, XXYZ, triangles, and flats.
The sequence ends in a structure. When the sequence isn’t finished, we predict the missing swings or waves using Fibonacci, RSI, and Trendline. We only buy or sell when the sequence is incomplete. To present our product (current structure) better, we use bullish, bearish, and sideways structures to offer a more comprehensive view and suggest aggressive technical targets.
IV. Relative Strength Index (RSI)
As we’ve already observed using tools like RSI, when the trend line breaks, it signals that the previous cycle has ended and a new one has started.
A cycle involves trading within an established trend channel in both price and RSI.
V. Correlation
It is very important that our buying and selling align with different market groups and instruments, identifying incomplete or extreme sequences. When a sequence is incomplete, it is beneficial to find the most lagging instrument within the group and trade it. Remember, market correlation is fundamental and must be used correctly.
The most important groups are:
USDX: includes: EURUSD, GBPUSD, USDCAD, USDNOK, USDJPY, USDCHF, USDSEK, and USDPLN
Commodity Currencies: AUDUSD, NZDUSD, and USDCAD
Indexes: SPX, DAX, FTSE, S&P/ES, DJIA, Nasdaq, Russell, AAPL, FTSE, DAX, IBEX, Eurostoxx50, NIKKEI, ASX, Hangseng, TASI, NIFTY
Yen Group: USDJPY, GBPJPY, EURJPY, AUDJPY, CADJPY, NZDJPY, CHFJPY, TNX
Commodities: include: Gold, Silver, Copper, Oil, NATGAS, soybeans, Corn, Sugar, Wheat, and Coffee
As we’ve seen, the market doesn’t always move in the same way across different groups, so understanding correlation is important. We need to verify the cycle and sequence in various crosses to determine which pair to trade within each group.
2. Strategy Implementation, Trading Motive and Corrective Sequences
The goal is to use all the tools and market correlations from the Resources to effectively implement the strategy. Remember, market correlation is crucial and must be used correctly. We only trade when the sequence is incomplete. If a sequence of three swings doesn’t reach the 100% Fibonacci extension, it is incomplete and therefore bullish.
When a sequence reaches 100% Fibonacci, it is complete, and we should not trade that instrument at that time. However, if it reaches 1.618% Fibonacci in three swings, we have a new, incomplete bullish sequence.
There are two different sequences in the market:
Impulse Sequence: 5–9–13–17–21
Corrective Sequence: 3–7–11–15–19
Traders need to understand these sequences to buy or sell at the right time. Recognizing impulse and corrective sequences, along with timeframes, helps identify the trend, which is crucial for avoiding basic mistakes.
A break in the sequence can signal a trend change or the end of an internal cycle. In a downtrend, you’ll see lower lows and lower highs, and the trend remains down until the sequence changes. In an uptrend, you’ll see higher highs and higher lows.
We need to remember to only trade in the direction of the trend.
When all instruments in a group indicate a pullback and extension higher or lower, buy or sell the ones with an incomplete sequence in that direction.
When we identify the extreme area, we will always trade an incomplete sequence.
Understanding these sequences and timeframes helps locate the trend, which is key to success.
Hedging typically occurs at 100% or 1.236 extension of three, seven, or eleven swings. This includes patterns like zigzag (ABC), double threes (WXY), and triple threes (WXYZ).
Confirm the hedging area using the following Fibonacci retracements:
6%–38.2% for wave 4
50%–61.8% for wave 2
4%–85.4% (deep retracement) for wave 2 or a flat
Always buy/sell at the 100% extension in 3-7-11 swings, confirming with Fibonacci retracements:
6%–38.2% for wave 4
50%–61.8% for wave 2
4%–85.4% for a deep retracement (wave 2 or a flat)
Note: We avoid trading triangles, flats, and triple threes.
It is recommended to always enter trades with a full position because if you lose, you lose with the full position. Trading must be approached professionally, with discipline and patience. A trader should act like a hunter, waiting for the market to come to them, always having a plan, and executing that plan.
We should always trade with the trend.
Only trade counter-trend when there are 5 swings in the correction or when the first leg is a 5-wave move.
I. Stop Loss and Partial Profit Taken
Set your stop below or above the 1.618% extension of 3-7-11 swings, or below or above the 76.6% retracement. Look for a setup on a higher timeframe and execute on a lower one. For example, look at the daily (D) chart and execute on the four-hour (H4) chart.
Take half the profit at 50% of A-B or W-X, and the rest at 100% extension. Then, move the stop loss to break even (below or above the entry price). When trading on higher timeframes, like daily or weekly charts, move the stop loss to break even once the previous structure’s high or low is broken.
This technique has a high success rate because it enters a market where sellers and buyers agree. The key, as we’ve seen, is always locating this extreme area.
II. Very Important Trading Warning
You must always have a trading system to trade safely. Without one, you risk losing your entire account.
You need to know:
When to start trading
Where to place your stop loss
What position size (risk/reward) should you use to manage your account?
Avoid these common mistakes:
Not setting position size and risk/reward
Chasing the market in the middle of a sequence
Overleveraging the position (adding more positions in same trade)
Trading against the higher timeframe trend (Trading against the higher degree sequence)
Trading bounces or pullbacks against the trend
