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Wave analysis Elliott

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Wave analysis Elliott



Analyzing the price movement at different time intervals, the Creator wave analysis determined that even the psychology of the market, i.e. players bidders, there are certain regularities. The behavior of the masses (the crowd), which is important for any financial market, from the point of view of psychology goes 6 - stage expansion, enthusiasm, euphoria, sedation, decline and depression.
Basic postulates of wave theory Elliott said, that the price movement in any market there are waves that allows one to predict the further development of the situation. According to Elliott, there are 2 models of the market is “bullish” and “bearish”. In a bear market there are no sharp price movement rates. In General, for such a market is characterized by calm during all processes. On the contrary, a bullish market is aggressive and dynamic price constantly jumps up or down, volatility remains high.

In wave analysis Forex, as well as in any other market, there are 5 waves that go in the direction of the underlying trend, and 3 waves, which move in the opposite direction. That is, according to the wave analysis of the full cycle a total of 8 waves: 5 - growth and 3 - fall (bull market) or 5 - drop and 3 - growth (bear market).

In figure 1 you can see an example of a bullish market: 1-5 - 5 rising waves, A-B-C - 3 wave correction down.


Waves always alternate, forming mutual correction - rising wave is replaced by a down-and Vice versa. “Pulse” of the waves in the wave analysis always follow the trend, “sliding” or wave “correction” is against him.

It is important to remember that Elliott argued about the existence of nested waves. In other words, any wave can be divided into several shorter, in turn, being part of a larger (longer) wavelength.

According to the wave analysis of the maximum wave cycle is the super-cycle, which will be split into smaller cycles. And yet - the higher the intensity of the pulse wave, the greater the force of the next corrective wave.

The most weak point of the Elliott wave theory is the determination of the wave. Even on the same timeframe different traders have different build waves, not to mention different time intervals.

The “old” market (the left half of the graph quotations) very well displays the previous wave. But new waves remain quite vague. That is why the analysis of waves in Forex or any other financial market should be done using additional indicators - for example, Fibonacci levels or volumes of transactions.

Knowledge of the basics of the Elliott wave theory is necessary for every trader who wants to become a professional. Not even using full trading algorithm for Elliott, it is possible to apply the wave analysis for profitable trading.

Remember that the profitability of trade is highly dependent on your chosen broker!


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