Elliot Wave theory in Forex technical analysis

Elliot Wave theory in Forex technical analysis

Forex technical analysis is known as the Elliot Wave theory of names have been published under the title "The Wave Principal". Elliot Wave theory was discovered by Ralph Nelson Elliot. Elliot points out that "the stock market behaves predictably chaotic, or erratic, but no". The pattern of trading in the market always moves in a recurring cycle. Price swings up and down due to the collective psychology of traders. Elliott calls this swing as a "Wave" or waves.

The attractive, Elliot stated that this wave will repeat in the same patterns. Elliott was sure if you are able to identify the wave, then you can predict where the next price direction.

What is advanced by Elliot made traders particularly interested. With this theory, it becomes easier for traders to see dots where prices have the possibility in a position most expensive or cheap. In other words, it allows traders to capture information on the top and bottom. This is a basic understanding of the Elliott Wave theory, are very useful in making predictions forex measurable.

More about Elliot Wave Theory

First you must know for what Elliott expressed about Fractals. Fractal is a general term which is used also in the world of mathematics. The term fractals is known as the "semblance of self or self-similarity". So, Fractals are a structure, where in the structure can be divided into several smaller sections that have very similar properties with the whole. As a parable, sea shells are Fractals, Fractals, lightning is cloud are Fractals, even flakes of snowfall is also the Fractals.

Elliot strongly emphasized the role of Fractals. Elliot stated that each wave Elliott are Fractals, and they can be divided in Elliot waves are smaller. According to Elliott, the market is moving in a trend will have a wave pattern is called a wave pattern 5-3, in which the wave 5 (first phase) will be followed by a wave of 3 in the next phase.

Wave pattern 5-3 in the Elliot Wave Theory

5 wave pattern is called the Impulse wave (Impulse Wave). This wave is divided into 5 wave model and mentioned each with numbers and sequence. Waves 1, 3, 5 is called a motif that usually represents the overall trend direction. Meanwhile, a surge of 2.4 is a correction.

The meaning is contained from each wave are as follows:

Wave 1: price makes the initial upward movement. This is usually caused by a small number of people (for various reasons, either real or perceived) that felt that the price was cheap so it is thought that this is the right time to buy. These conditions cause the price moves up.

Wave 2: at this point, enough people who originally had been the original wave (ride) considering the price is already too high and take advantage. As a result, the price moves down.

Wave 3: this wave is usually the longest and strongest. In this phase, the stock has attracted a lot of public attention. As a result, the prices soared. In General, the price will soar higher than at the time of wave 1.

Wave 4: in this phase, some people do take action straight away and felt the price was expensive. However, there are also some people who feel that the prices are still in a rising trend (bullish). Thus, this wave tends to still weak.

Wave 5: this is the phase where prices are already too high for collected or bought and the forces that are able to make prices continue to move up was a factor in hysteria.

You need to know that there are 21 patterns corrections in the Elliott Wave theory, ranging from simple to the most complex. 21 this correction pattern master will be very beneficial in improving your forex technical analysis capabilities.