Elliott Wave Trading Strategies

How to Understand the Wave Cycles for Entries and Exits

The foundation of Elliott Wave Theory is from the Charles Dow Theory that the market moves in waves and cycles. These cycles have been altered in recent years due to the massive internal structural changes of the Market Participant Cycle. This cycle is dominant and is important for all Elliott Wave Traders to learn so that you can recognize which Market Participant Group has created the current wave or wave pattern. Also whether this will alter the Elliott Wave Cycle, lengthen or shorten it and how to use this knowledge in your trading strategies.

The Market Participant Cycle is a far more complex cycle than when Charles Dow first wrote his theory of the 3 wave pattern. It is more complicated and intricate than the original Elliott Wave Theory, and the adapted and extended theories written by Frost and Pretcher in the 1970’s – 1980’s.

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The Market Participant Cycle is the theory taught by TechniTrader® which was developed and written by Martha Stokes CMT. This theory fills the gap in the Elliott Wave Cycle theory that has occurred due to new Market Participant Groups, and technological changes to the internal hidden market structure aka as the professional side of the market. The retail crowd has scant information about what actually goes on within the internal market structure, where no Retail Trader is allowed.

When you view the Market Participant Cycle chart below the first thing to notice is that there are now 9 cycles instead of just 5, which can throw off the analysis if not recognized. Often times, instead of accepting that the wave pattern is not just 3, 5, or even 7, but 9 waves can confuse and alter the proper analysis of the wave pattern.

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In addition, nowadays with the dominance of the Dark Pools and High Frequency Traders, it has become imperative that Elliott Wave Traders identify WHICH Market Participant Group is controlling price within that wave or wave pattern. When you know which group controls, you will know immediately how price will behave in the near term, what indicators will reveal Dark Pool activity, and how to trade that wave pattern for optimal profits.

The Market Participant Cycle of Dow’s and Elliott’s day was a much simpler Cycle. The chart example below shows that original cycle wave pattern created by Dow, and interpreted by Elliott to include the Fibonacci theory as part of his wave theory.

This cycle has expanded, especially in the past 2 decades due to the structural changes in the financial markets. Every market has its own unique Market Participant Cycle. The chart below shows the current cycle for the stock market.

As you can see, the cycle has lengthened and includes far more diversity in terms of the participant groups. This is important because each group has its own:

1. Agenda or reason for buying or selling the stock.

2. A different type of order for example TWAP, VWAP, OSO, OCO, and many others. Most of the new orders are not available to the Retail Trading and Retail Investing groups. The ability to control their buy or sell orders to the penny or half-penny can alter and cause deviations in the Elliott Wave pattern.

3. Different Venues on which they transact their orders. Dark Pool Venues are unlit venues, which means that the transactions are not visible intraday on the stock exchanges. This is just one example of the differences in venues. Unlit versus lit venues has an impact on front running predators and opportunistic Professional Traders.

4. Completely different ROUTING systems. High Frequency Traders are tied directly into the public exchanges, giving these millisecond trading systems a huge advantage over all other participants trading via the exchanges and other connected routing systems.

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5. Speed of execution. High Frequency Traders can trade 60,000 times per minute. Dark Pools large orders take an average of 10 minutes to fill. The Retail Brokers are required by law to fill your order within 90 seconds. Retail Brokers fill over 95% of their client’s orders via their company inventories of stock held I street name.

6. Liquidity makers versus Liquidity Takers. Liquidity is a huge area of concern for Retail Traders who often get whipsawed out of a trade due to a shift of the Maker-Taker Roles of High Frequency Traders.

7. Share Lot Size. Orders are filled based on PRICE, QUANTITY, and TIME. Since quantity is the secondary fill requirement, large lots always receive more important status in the queues of the exchanges over smaller lots.

Number of Participants in that group. There are only 25-30 Giant Buy Side Institutions, however this group controls almost 40% of all the activity daily. What the Dark Pools do alters the Elliott Wave pattern. The Dark Pools control tops and bottoms, and create Platforms rather than Peaks and Valleys Trends.


As an Elliott Wave Strategy Trader, learning about the Market Participant Cycle and the individual groups within that cycle will give you a huge advantage over other traders. It enables you to recognize which group is controlling price for that wave, which tells you many things you need to know to trade that wave for maximum profitability.

More next week.

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Trade Wisely,

Martha Stokes CMT

TechniTrader technical analysis using a TC2000 chart, courtesy of Worden Bros.

Chartered Market Technician
Instructor & Developer of TechniTrader Stock & Option Courses

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