In this lesson, we will borrow the relevant knowledge of Elliott Wave Theory that we have mastered to determine the entry point, stop loss point and exit point. Now, let’s get started!

## Scenario 1:

First of all, all we need to do is to count the waves. As shown in the figure below, you see that the exchange rate seems to have bottomed out, and a new upward trend has started. Using your knowledge of Elliott wave theory, you mark this uptrend as the first wave, and mark the subsequent retracement as the second wave.

In order to find a good entry, you will review some of the points we talked about before to determine which of the three important principles and guiding points you can apply. In this example, you will find:

• Rule 2: The second wave can never exceed the starting point of the first wave
• The retracement of the second wave most favors 50% or 61.8% of the first wave

Therefore, combining the three important principles and guiding points of Fibonacci wave theory, you decide to take out the Fibonacci tool to determine whether the exchange rate is at the Fibonacci level.

You find that the exchange rate is just right at the 50% Fibonacci retracement level. Well, this is probably the opening phase of the third wave, because it has sent a very strong buy signal. As a smart trader, the setting of the stop loss point is of course within your consideration.

Rule 2 mentioned that the second wave can never exceed the starting point of the first wave, so you choose to set the stop loss level below the starting point of the first wave.

If the exchange rate retracement exceeds 100% of the first wave, then the wave you counted will be wrong. Let us see what happens next.

Your analysis of Elliott Wave Theory has brought you generous returns! Because you grabbed a rather huge ascent process.

Afterwards, you come to Macau or Las Vegas and lose your previous profits in roulette, and then return to the beginning.

Fortunately, here, you have another chance to make money…

## Scenario 2:

This time, let’s see how to use the wave pattern to profit in the descending wave.

You notice that the ABC callback wave is in a sideways trend. Do you think, may this be a platform form? If this is the case, it means that once the C wave trend ends, a new round of driving wave trends will start.

With a feeling of great respect for Eliot’s wave theory, you choose to short the market price of EUR/USD, because you look forward to being able to seize the new round of profit opportunities for driving waves.

You set your stop loss above the opening point of the fourth wave to prevent mistakes in your judgment of the wave.

This time, your judgment is correct again. In our trading, a good start is only half successful. Choosing the perfect playing time can declare the success of our trading. This time, your profit is as high as nearly 2000 points. Of course, this opportunity will not always appear.
You have learned the previous lesson, gave up the idea of going to Macau or Las Vegas to try your hand, and instead use your gain to enrich your trading account.