In Elliott Wave trading, the stop-loss is placed at the price level that would invalidate the current wave count — providing a logical and objective exit point.
Description
The Elliott Wave framework provides a natural location for stop-loss orders: the level at which the current wave count becomes impossible. For example, when trading the 3rd wave up, the stop is placed just below the start of wave 1 (since wave 2 cannot retrace beyond the origin of wave 1). This makes stop-loss placement objective rather than arbitrary.
Key Points
- Long in wave 3: stop below the start of wave 1 (wave 2 cannot exceed wave 1 origin)
- Long in wave 5: stop below the end of wave 4 (waves 1 and 4 cannot overlap in a standard impulse)
- Long in wave C of a correction: stop below the start of wave A
- If price hits the stop, the count is invalidated — do not hold and hope
- Tighter stop-loss = more defined count; wider stop-loss = more ambiguous count
