Elliott Waves

Elliott Waves Reflect the patterns of price movement in the foreign exchange market. Many of the traders saw them, however, Ralph Elliott, in whose honor this theory was called "Elliott Wave Theory", was able to define and clearly describe these patterns. He believed that any of the trend movements can be decomposed into components. Time has proved that, having the right wave counting, you can exactly enter the market and fix the profit.

Any trend is broken down into five waves, of which three are impulse and two are corrective ones. Impulse waves Elliott move in the direction of the main trend, and correctional - in the opposite direction. Each of the impulse waves, in turn, decomposes into five more similar structures, that is, one of the five waves of the older timeframe is formed by a five-wave structure on a smaller timeframe. The vertices of such a five-wave are usually designated by numbers, respectively, from 1 to 5.

And correctional waves form three subwaves, while two of them are pulsed, and one is corrective. They are usually denoted by Latin letters A, B, C.

In fact, this mathematical theory is a rationale for the behavior of both society and financial markets according to cyclically repeated recognizable patterns (patterns, patterns). In each of the cycles of the life of the market or society, division into 8 waves is possible: in the form of a five-wave cycle toward the main trend (labeled with numbers) and a three-wave corrective cycle to it (labeled).

Elliott's wave analysis is aimed at recognizing this kind of structure, which may allow us to predict the subsequent direction of the trend. In this case, two models of the market are distinguished: "bull" and "bear". The movement of each wave to some extent corrects the movement of the other.

Elliott waves are based on the market price movement, and when they are constructed they use the rules of proportionality. In the price patterns, the wave ratios satisfy the Golden ratio, as well as other Fibonacci proportions. The behavior of the market, of course, is not predetermined, and an error of the order of 10% is possible.

In addition to the classical five- and three-wave bands, other elements are practically possible: elongated or truncated waves, corrections that look like divergent triangles, wedges, double zigzags, and others.

Similar waves are observed on any graph and arbitrary time interval. Here it should be taken into account that at small time scales, the wavelengths are very short, possibly several points. Therefore, it is better to use the wave theory on older timeframes.

To properly perform wave counting and interpret it, you need a lot of knowledge and experience. However, those who manage to correctly determine the first and third waves get optimal inputs. With the help of Fibo levels determine the depth of correction and future goals.

It happens that to determine the third or fifth wave only at a price is not possible, and then the completed marking loses its objectivity. The price chart can not reflect the difference in the strength of the waves.

To help in this case, the Elliot wave indicator can come, capable of measuring the rate of change in the price in one of the waves in relation to the rate of price change in another. The standard indicators do not compare the dynamics of activity at a price.

The work of the Elliot oscillator is based on the difference between the fast (5-period) and the slow (35-period) moving average. For example, the third, strongest wave on the histogram of the indicator has the highest elevation.

Elliott Waves can not be mastered at once, however, having studied their language, you can get answers to any of your questions concerning the price behavior in the market.