Wave Analysis of Forex Market or Wave Principle Elliota - View technical analysisWith the help of which the price movement is considered like tides and tides in the seas, and each action has opposition. In other words, all the price movement in the Forex market is divided into two main groups of waves:
- impulses - the carrier-moving price or upwards (designated);
- Correction - Waves designed to adequately "reply" to the pulse (designated by letters).
Wave analysis or wave principle of Elliot is the type of technical analysis, with which the price movement is considered like tides and tides in the seas, and each action has opposition. In other words, all the price movement is divided into two main groups of waves:
- Impulses - the carrier-moving price or up or down (designated);
- Correction - Waves designed to adequately "reply" to the pulse (denoted by letters).
Pulses and corrections are always alternate. Consider an example of a pulse. The impulse always consists of five waves, 1, 3, and 5 waves are always driving and themselves are impulses, and waves 2 and 4 are correctional.
In the graph below, we see downward impetus. Waves 1, 3 and 5 as we said are driving, and waves 2 and 4 are directed against the trend and are correctional. An important rule The pulse is that the wave 2 should not go beyond the wave 1, and the wave 4 for the wave 3 (the exception is diagonal triangles: a wedge and a finite diagonal triangle, in them there is interconnection of the waves), wave 3 cannot be the shortest of all moving waves . After the pulse is completed, either correction or impulse, but already directed in the opposite direction. On the chart, we are just observed as at the end of the downward pulse, the pulse started upwards.
Pulse
Wave analysis, with the right approach, has a great prognostic value. Take for example the above wedge. Wedge is always the first wave of impulse and after its formation, a significant price movement begins in the direction of the formed wedge. It is this development of events that we see on the schedule below. Also, there is clearly visible interconnection of the waves.
Wedge
Unlike impulse waves of which only two types, corrective much more. The simplest example of the correctional wave is a zigzag. Zigzag always consists of three waves. A simple zigzag is usually wave 2 in a pulse. This gives us a reason to assume that at the end of a simple zigzag, we will have a significant price movement towards the trend. This we see on the very first chart in which an example of a pulse is brought. Here Zigzag is formed in the wave 2 and at its end it began a powerful movement toward the trend.
Simple Zigzag
A simple zigzag is the main "material" for complex correctional forms. For example, a double zigzag consists of two, triple, respectively, of three simple zigzags. These complex correctional models are designed to deepen correction after a very powerful impulse movement. In such cases, simple zigzag is not enough. An example of a double zigzag is also given on a graph with an impulse, here a double zigzag was formed in 4 waves and marked with letters W, X, Y.
Correctional models also include horizontal and inclined triangles. An example of a horizontal triangle is shown below. A feature of this model is that it is a penultimate wave in the momentum, that is, it is always 4 wave of impulse, and after its formation, the final step of the pulse movement will come, the trend change is already close.
Horizontal triangle in the wave 4
So, we briefly reviewed that the wave analysis of the market is. I would like to add that this method of analysis is very interesting, it's like a puzzle, solving which you get joy. But still there is a lot of subjectivism here that sometimes it often prevents the situation correctly and make the right decision.
Wave analysis is one of the most popular methods for determining the current situation by. The basis of this technique of technical analysis are currency charts on which the price level moves. The price movement in the schedule during the analysis is customary to be divided into lands and waves, which are used to predict the price level movement.
Wave analysis. Features
If you decide to apply a wave forex analysis to determine the current situation in the foreign exchange market, you must remember the following rules:
- This analysis method is not directly related to any trading systems. The algorithm for carrying out wave analysis does not allow to determine the appropriate moments to enter the market and to close the orders open earlier. For this reason, the prognosis of changes in the price level created as a result of the wave analysis is not recommended to be used as a signal to create transactions.
- A wave analysis is a fairly effective tool, which, with competent use, it makes it possible to significantly improve the trading strategy used by the trader. This analysis method allows you to deal with the features of the behavior of the price level. Wave analysis makes it possible to identify the benchmarks with the help of which you can determine the behavior of the price level with high accuracy.
- To date, the wave analysis is rightfully considered to be the most universal tool, since it can be created by the forecasts of market trends on any time frames.
A wave analysis of currency pairs has a sufficiently low degree of formalization, for this reason the conclusions made using this method of market research are subjective. This is because the situation in the foreign exchange market is constantly changing, for this reason the results of the analysis are relevant only at the time of their receipt.
Wave analysis. Basic principles
During the wave analysis, it is customary to allocate two main types of waves:
- Pulse waves. They are more prolonged. Most of the traders apply them for lending. The duration of the oscillation of pulsed waves, depending on the situation on the market, can reach three hundred points.
- Correctional waves. Since they are distinguished by a small duration, do not recommend using them for lending. Correctional waves are very short, for this reason, to use them for profit is almost impossible. Professional traders in some cases use these waves for lending, but at the same time they risk obtaining serious losses.
Practice shows that the optimal moment to create an order is the beginning of a pulsed wave, but, unfortunately, to identify its base is very problematic. During the use of a pulsed wave for lending, in order to avoid serious losses, it is recommended to install STOP-LOSS at its base.
Almost all professional traders use a wave analysis to predict changes in price level, as this method significantly exceeds other analogs in accuracy and efficiency.
Wave analysis. Application
Any price level fluctuations form waves. At the time of the origin, any trend consists of five waves, during development it acquires a three-wave structure. After that, the trend can either continue, or change to the opposite.
According to the wave theory, the longest is the third wave, which is usually denoted by the "3" figure. It is this wave that gives the most opportunities to create orders.
In the process of the price level of the price level, the impulses always alternate with correctional waves. The impulse always possesses five waves: the waves at number 1, 3 and 5 drive the price level in the direction of the trend, and the waves under number 4 and 2 reflect correction.
On the picture presented above, a downward pulse is depicted. The waves indicated by numbers 5, 3 and 1 move the price level down, and the waves indicated by numbers 4 and 2 have the direction opposite to the trend and are correctional. For a standard pulse, a situation is characterized when the second wave does not enter the first, and the fourth for the third. The exceptions are situations where there are such figures on the chart as a wedge and a diagonal triangle, since the waves in them intersect mutually. After one impulse is completed, a correction or a new impulse follows it, which will have the opposite direction. On the picture presented above, you see that after the downward pulse is completed.
At the above picture, you can see a graphical figure of a wedge, which is usually the first wave of impulse. After a wedge is formed on the chart, a powerful price movement occurs.
At the above picture, you can see an example of a correctional wave, called Zigzag, which includes three waves. Usually Zigzag is a second wave of impulse. After it occurs on currency graph It is possible with a high probability to assume that the price level will soon make a strong leap towards the main trend.
Despite the fact that the method of analyzing the situation in the market described in this article is quite efficient and accurate, it cannot be called simple, since the results obtained are subjective and directly depend on the qualifications and experience of the trader. For this reason, it is more suitable for professional traders than for.
If you decide to use a wave market analysis to conduct trading in the Forex market, it is recommended to test it on, otherwise, you can incur substantial losses due to an illiterate assessment of the situation in the currency graph.
I hope this article will help you become a really successful trader.
Despite the constant variability of the market, it is amenable to forecasting. It turns out if the trader can find out the price movement, then you can earn on it. How to do it? Today there are quite a lot of tools that allow you to qualitatively carry out technical analysis. Wave analysis of Elliott is one of those.
Note that everything is there eight market waveswhich constantly have a property to repeat. This is exactly what allows us to make a profit. If you are really interested, as applying a wave analysis in the foreign exchange market to earn a good, read this material to the end.
Immediately note that analysis of the waves of Elliott Lesson is not from the lungsWhat you can not say about other trading strategies that are used in the Forex market. Only one who will examine the theoritic part will be able to use it at the price schedule. Real pro, which earn with the help of wave analysis, argue that for this it is necessary to thoroughly explore not only the theory, but also consolidate it almost. Just imagine how much more profitable trade is if the trader knows not only the period of turning the trend, but also the entry point in the market.
Repeat again, to study the wave analysis of Elliott, it is possible not to every brand-new trader. But if he infiltrates her, he will succeed in achieving large results in the foreign exchange market. To date, the wave analysis is carried out on a more simplified scheme - through special forex indicators, which demonstrate wave oscillations.
The essence of the wave theory of Elliott
At one time, this theory created a simple economist Ralph Elliott. He worked in the company engaged in rail transport. Once he analyzed the dynamics of the market and overnight discovered an interesting pattern for himself - there is no disorder in price fluctuations, the market is moving according to regularity. In other words, assets on the commodity, currency, stock market And even the stock exchange works depending on the mood of their participants.
So, the basics of Elliot wave analysis suggest axioms that pricing oscillation can be classified to eight wave models. In the case when the model at the initial stage of its formation is seen by the trader, this makes it possible to determine the further progress of the price, as well as when you open a deal, and even in what places it is fixed.
It should be noted that the wave analysis of Elliott has both adherents and opponents. Its main disadvantage can be called the fact that it is not always possible to determine the beginning of a model of a wave. However, the sequence of Elliot waves allows you to identify additional indicators, and this is an order of magnitude simplifies the entire process of technical analysis.
Advantages and disadvantages of modern Elliot's theory
We emphasize that this theory should know every self-respecting trader, since she fully allows you to understand all the laws about the dynamic market. Thus, a wave analysis of Elliota is a universal method of technical analysis, allowing even a less experienced participant of the Forex market to receive a decent profit. After all, in time, by following the opening of the order, the trader receives an increase in profit.
Those who trade with the help of Elliot's wave theory, probably found the key to understanding the laws on which Forex works. This is undoubtedly it is. In time, enter and leaving the market will allow knowledge obtained after studying this theory.
In addition to the significant advantages, which has a wave analysis of Elliott, theory, like all other trading tactics, is not devastable. Among the main negative points are allocated as follows:
- The theory of Elliota, as well as its fundamental principles, traders see differently. This theory is exclusively subjective.. Since each trader treats the market in its own way, then the size of the wave each will have their own value. As a result, all the strategies will be different.
- Even experienced participant in the financial market not able to quickly assess the situation and respond to price changes. Find out what the wave is at the moment the Japanese candle is quite difficult.
- By wave analysis There are many different literature, as well as a number of research. Learn all the material is practically not possible. In addition, each author as part of an individual research offers its ideas, which will cause a newcomer in the head of a newcomer.
Despite these disadvantages, the wave analysis of Forex continues to be very popular among the traders of all types. Especially since the new developments in the world of indicators allow you to significantly simplify the wave analysis.
Basic pulse pattern
Basic impulse in classical understanding has 5-wave structure. The impulse are 1, 3 and 5. Correctional - the second and fourth.
Correctional and impulse patterns in the bundle are full wave cycle. It is denoted by A-B-C. That is, in understanding Ralph Elliot, a full cycle is an eightwall candle formation.
On the market in the framework of the wave analysis, the cycle must constantly repeat. In other words, the impulse should be replaced by the correction and vice versa. But all the snag and the main difficulty lies in the fact that more complex corrections are formed on the chart. We will talk about them further.
Schematically wave analysis of Elliott looks like this:
Figure 1. Basic cycle.
But the base cycle at the price schedule:
Figure 2. Basic cycle on the chart.
Schematically, the full cycle is depicted in this form:
Figure 3. Full cycle (diagram).
At the price chart the full cycle looks like this:
Figure 4. Full cycle on the chart.
We carry out the analysis of the structure of the waves
Each wave within the framework of the theory of Elliota can be disassembled on the bewilder, while the integrity of the theory itself will not be broken.
It's time to tell about by what rules waves are being built in the momentum:
- The second wave does not roll back more than 100% of the first wave. If this happens. This will be a correction for a downward trend.
- The fourth wave should not roll back by more than 100% of the third wave. Otherwise, the wave, which was adopted for the fourth - is a pulse for a downward trend.
- The third wave is the longest, since it cannot be short within all other waves. By the way, she can have a second place in length, but not the last.
- The third wave will always be on the first wave.
- The fourth will not move on the location of the first wave.
The shortest third wave can not be a priori. It will always have a bigger size than the first or fifth wave. Schematically, the details of the waves are completed below:
Figure 5. Detailing of waves in the diagram.
But the same detail of the waves, but already in the candle execution:
Figure 6. Detailing of waves on the graph.
Building with violated rules
Deep correction
As retracting movements in the wave analysis, we will consider Elliot's Correctional Waves, which look in the opposite direction from the main impulse. With the help of three-wave structures, all correctional formations are developing. They can have a variety of shape and view. Perhaps a deep correction is considered the most common.
Trade on wave analysis involves the presence of deep correctionsSometimes on a greater amount of impulse (Fibo levels 61.8 and 78.2).
Deep correction may have a view:
- double zigzag;
- zigzag;
- triple zigzag.
Waves must match Zigzag:
- Wave C \u003d 0.618.1, 1.618 (a) (Fibonacci expansion);
- Wave C \u003d 1.272 (b) if B deep correction (Fibonacci grid);
- Wave C \u003d 1.618 (B) if b flat correction (Fibonacci grid).
When the wave analysis of Forex is carried out, but the price does not reach the target, the formation of a more complex figure of technical analysis occurs, say double zigzag or triple (less often). In such conditions, it will save the use of such marking: (y), (x), (w), (x), (z).
Waves must match the following scheme:
Figure 7. Matching waves.
Double and Triple Zigzag
Figure 8. Double and triple zigzag.
When a wave analysis of the Forex market is carried out, a stronger Fibo level 61.8 can be applied:
Figure 9. An example of a level of level 61.8 in Fibonacci.
On flat corrections
You should not count that this type of correction to roll back deeply. This will not happen especially with respect to the previous impulse movement. We are talking about triangles, various planes and combinations of triangles. Often, within the framework of the wave analysis of the Forex market, you can count on rollback of prices to Fibonacci levels 23.6 and 38.2.
Flat corrections form quite often the fourth wave, sometimes the second. The ratio is: with a wave C \u003d 0.618, Fibonacci expansion 1.618 (a).
Note that when we are looking for the entry point in the wave analysis at the time of a strong price burst, the presence of Flat is very striking. Often it preceded stretching or this movement.
The flask will always be short with a strong trend movement. However, if the flue short corrections are observed, then you should count on a stronger price movement. Classify their structure as follows: 3-3-5. Schematically, it looks like this:
Figure 10. Schematic example.
Graphically:
Figure 11. Flat correction.
So, we managed to briefly tell about how to properly carry out a wave analysis of forex for profitable trade. In particular, they were disassembled in the details of the Elliott wave and the rules were analyzed along which they are built. Now you can easily apply these rules for more profitable trading.
- Graphic method of technical analysis, allowing to evaluate the behavior of market players based on the study of the waves of price movement. The basic postulates of the system were formulated in the mid-thirties of the last century.
The creator of the theory is Ralph Elliott, but not a smaller contribution to its development and popularization was made by a well-known financier Robert Premeris.
Description of the Wave Theory of Elliott
The basis of the Elliott theory is the observation, according to which each trend consists of certain basic areas (waves), which are constantly repeated.
Two types of waves are isolated on the market - pulse and correctional.
The first moves towards the main trend. The second, respectively, are corrections to them. The main figure of the wave analysis consists, in fact, from one impulse and one correctional wave (1-2-3-4-5 / abc). She, in turn, is divided into impulse and correctional waves of junior order.
Pulse waves are denoted by numbers from 1 to 5, the correctional lines A, B and C. According to the theory of Elliott, each trend is a combination of such "five" and "Trok".
Any tendency lasts until five waves are formed, after which it is either deprainedeither corrected. In the latter case, three correction segments are formed. In total, eight waves occur as part of a similar cycle. If the turn occurred, then we observe two impulse waves formed by ten segments.
Let's analyze the structure on the screenshot above. Waves Elliott 1.3 and 5. are pulse. They follow a general trend. Waves 2 and 4., accordingly, correctional.
In the correctional structure ABC, the situation changes somewhat. Since this structure is included in the total descending wave (correctional), the waves a and c, and the wave B, pointing upwards, is considered impulse here.
Advantage of Wave Elliott
it is that such structures can be found both on the ascending and on the downstream market. In the latter case, we are talking about the mirror reflection of the bullish structure. That is, all impulse waves of 1.3 and 5 will be descending, and 2 and 4 - ascending corrections. Accordingly, in the correctional wave A and C will be ascending, and in the descending.
It is important to note that the structure of the trend does not depend on temporary scales.
Video - Elliott Waves
Rules of Wave Elliott
To determine the eye five or three plots in any trend is not so difficult. Roughly speaking, it can do anyone who knows how to count to ten. The problem is that two traders analyzing the same schedule may well come to absolutelyopposite opinions regarding its structure. To remove the subjectivity of a visual assessment, and the basic rules for the formation of waves have been developed. Some of them were created by Elliott himself, some were subsequently added by other theorists.
Let's start with the list of basic rules:
- The second wave of impulse should not be descended to the level of the initial point of the first wave. If this happened, then it is worth questioning the very fact of the development of trend.
- The third wave of the impulse must exceed the extremum first. In addition, it cannot be the shortest of three impulse in the event that we are talking about large-scale time segments.
- The fourth wave of impulse can not fall below the extremum first. This rule in real market trading is sometimes neglected, but in such cases it is necessary to perform the following condition.
- The fifth pulse wave should be above the extremum of the third.
Additional
- Correction inside the pulse should be different in complexity, nominal size or formation time. If there are no differences to at least one of these parameters, the development of the trend is to question. There is a possibility that at the moment some kind of complex correctional model is formed.
- In accordance with all the requirements of the impulse structure, one of the driving waves should be stretched, that is, the two others exceeding the nominal size.
- Three nearby waves that are part of the impulse must be formed in different durations.
Based on the above rules, the trader may distinguish a pulse and correctional structure. If the wave meets all the requirements, it means thatit refers to the first type. If the conditions are not fully fulfilled, this is either a correctional structure or not yet formed impulse.
- If the third wave is more fifth and the first, the latter will be approximately equal in length. This recommendation may be useful when analyzing the end of the fifth wave. Even if the fifth wave is longer than the third, and the third is the third longer, we can still calculate the end of the fifth wave. To do this, we will need the top of the fourth wave.
- In the process of observation of the wave structures, another interesting pattern was identified - the size of the correction waves 2 and 4 may be different, and they alternate from time to time. For example, if the correction in the wave 2 was strong enough, it means in the wave of 4 it will be insignificant and vice versa. Using this recommendation, you can approximately calculate the correction time in the fourth wave. If, for example, there was a significant and rapid correction in the second wave, then in the fourth it will be more calm.
- Another interesting fact. The completion of the ABC correctional wave should pass at the wave level 4 (minimum value).
The theory of Elliott waves in practice begins with the construction of the schedule. To solve this task, it is better to use indicators, we will talk about some not much lower. Specialists recommend applying standard analysis candle graphlike the most informative and objective. Elliott waves on the schedule:
- The first step will be the determination of a significant point of reversal. To do this, you can apply such a tool as a signal line. From the moment of its intersection, the period begins, which we will consider.
- After the reversal point is defined, it is necessary to assign the names to all the waves of interest to us. This is a rather complicated process, the quality of subsequent analysis directly depends on the correct execution. It is important to remember that the assigned structural designation cannot be subsequently reviewed if there is no significant reasons for this. The selection of a temporary scale remains behind the trader, but it is recommended to use the segments not longer than thirty mono-mills. Next, marks movement.
- At the final stage, the wave seal occurs, that is, it is assigned a corresponding structural designation in a similar system of a larger scale. Thus, gradually the entire schedule will be collected in one of the basic models of Elliott.
Now the trader sees the construction of the market and can assume how it will develop further.
Waves of Elliott in practice
The most common occasion for trade in the Elliott system is the presence of a pulsed wave from the trend turn point. Positions need to be opened in one of three driving conversations, but should be attentive, so there is always the likelihood that the selected structure will be the component of a greater correctional model. After the formation of a pulse wave, it is necessary to wait for the first correction. Its completion is a signal to the market entry.
Conservative method
After the movement towards the initial pulse resumed, a signal line was carried out through the turnover point and the point of the alleged completion of the correction. Posted on the purchase opens at the level of the maximum of the first driving wave. If the price movement did not reach the order and unfolds, punching the signal straight (this happens in the case of a complex correction), it is necessary to ensure that it does not fall below the reversal point. When growth resumes, the line is adjusted by a new minimum.
If the position was open immediately, you need to continue to monitor the signal line. As soon as the price goes down and touches it, the transaction is closed and put a new application at the level of the extreme maximum. Do not be upset if, after touching the "signal", the price curve immediately will immediately go towards the trend. This is a working time to which philosophically should be taken, besides, the accomplished loss can also be compensated by a new contract.
Moderate and aggressive methods
The initial conditions for opening a position with a moderate strategy are similar to conservative trade. The difference is that the application is placed at the end point of the correctional wave B. It is always necessary to remember that the alleged correction can delay. The adjustment of the signal line and the output from the position is carried out by the same principle as in the previous method. This option is recommended for novice traders.
With an aggressive strategy, the application is placed only after the breakdown of the signal line. It is believed that the very fact of such an intersection indicates the completion of the structure and the beginning of the formation of a new model.
Elliota waves indicators
There is no ideal indicator for constructing Elliott waves, however, the variety of modifications allows each trader to find the most suitable version of its manner. Consider several popular tools.
Elliott Wave Oscillator.
This is an indicator, on the graph of which the histogram is displayed (by analogy with). The highest peaks correspond to the third driving wave of the pulse. It can be applied almost on any timeframes, however, too short intervals are not recommended.
When the histogram stops the zero mark from below, the divergence is formed, reporting on the completion of the next wave cycle. If at the time of the first correctional movement, the oscillator breaks the zero in the opposite direction, the formation of a wave 3 must be reinforced by another divergence. In the case of its absence, we can assume that the initial point of the model is defined incorrectly.
The drop in the histogram is 30-50% relative to the local extremum indicates the end of the third wave and the beginning of the formation of the second correction segment. The completion of the process of formation of the fifth wave also says the divergence - the growth / fall in the price chart is accompanied by a decrease in the columns.
According to the first trade rule, first need to wait for confirmation of the final intersection of the zero level. If the tendency is ascending - the histogram of the indicator is displayed above the level of the middle, if descending - below the level of the middle. The entrance to the position is carried out after the first divergence. A growing price and a falling oscillator report selling, the reverse discrepancy is to purchase. You can already log in after the correctional movement drops / rises by about a third relative to the first pulse wave. Stop Loss is usually placed at the level of extremum and close the transaction immediately after the formation of a new divergence.
Elliott Wave Prophet and Watl
Wave Prophet indicator is quite popular among traders using Elliott waves. With it, you can not only see the completed movements, but also to predict the further direction of the price. The wave model on the graph is built automatically. If the trader believes that the initial conditions are defined by the system erroneously, it can always ask them yourself.
WATL is a convenient indicator that not only clearly displays the wave models, and also draws trend lines. The user can see the trends of different timeframes and the forecast of the future trend. As already mentioned earlier, the optimal indicator for the implementation of the theory of Elliott was not yet invented. The listed tools can be considered the most effective at the moment, but they are still far from perfect. However, this in no way detracts their advantages and benefits for traders.
Criticism of Elliott Wave Analysis
Elliott waves are often criticized. Many opponents of this method believe that there is little practical benefit from him, since it is sufficiently subjective. Moreover, there are opinions of actual practicing traders that this type of market forecasting rather contributes to the emergence of damages than profit.
What exactly do the attacks of wave analysis do?
First of all, they note that price movements cannot be predicted with such a framework. The price can be significantly deviated from the drawd waves. In addition, there is a subjective factor here. After all, waves, like other types of graphic models, can be seen literally in any formation, if desired.
Part of critics notes that the wave analysis is a method with a mass of nuances that are not clear most traders. For example, it is not always possible to determine in the process of trading where the waves begin, and where they are completed.
Critics also note that the best waves of Elliott can be defined only in historical graphs. As for working with this theory in practice, it is practically impossible due to the large number of factors.
Video about the driving and corrective waves of Elliot
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Wave analysis of the Forex market - the prerogative of confident and denoted traders of the currency exchange.
Unfortunately, more and more novice traders use other people's mistakes and do not want to make them independently, relying on private traders who lead their blogs on the Internet.
In trade in the foreign exchange market for each trader it is very important to be able to correctly determine market fluctuations. This is a sign of the success and experience of the trader. To do this, you can use the wave analysis of the Forex market.
The history of the emergence of the Wave theory of Elliot
Elliot's wave theory was developed by Ralph Nelson Ellis in the 1920s. He discovered that the behavior of the market, which was previously regarded as chaotic, actually had a cyclic character.
He also determined that such market cycles became the result of a trader's reactions to external events, which can still be called the psychology of the crowd. Elliot noticed that the fluctuations in the behavior of the crowd and down were always poured into the same repetitive samples, which he subsequently called "waves."
Market forecasts with wave analysis
Elliot carried out detailed market forecasts based on the unique characteristics that it opened in the wave patterns. The impulsive wave, which moves in one direction with the dominant trend, always shows five waves in the pattern.
On a more detailed chart, within each impulsive wave, you can find five components of the waves. These waves are considered to be different stages in the wave principle of Elliot.
On the Forex marketlike on other financial marketsTraders know that "each action becomes a source of positive and negative reaction," as behind the price oscillation up or down, the oscillation opposite should follow it. Price oscillations are divided into trends and adjustments or side oscillations. Trends display the main directions of price movement, while adjustments fluctuate against the trend. Elliot called it with impulse and correction waves.
Forex Wave Analysis Theory Patterns
The theory of wave analysis of the Forex market is interpreted as follows on five patterns:
- Each oscillation has its own consequences.
- Five waves move in the direction of the dominant trend, followed by three adjustment waves.
- The movement of these waves is called "wave oscillation 5-3" and it completes the cycle.
- Each previous wave oscillation 5-3 becomes part of the next higher wave oscillation 5-3.
- The basic wave pattern 5-3 remains stable, although the time interval of each pattern may vary.
In order for the trader to use a wave analysis of the Forex market in everyday trade, he needs to learn how to determine the main wave and then buy a long position that he will later sell, or take a short position when the pattern finishes its action and its reboot is inevitable.
The mathematical database for the use of wave analysis of the Forex market provides Fibonacci numbers. They are playing important role In the design and creation of a full market cycle, which is described by Elliot's waves. Each cycle that Elliot determined consists of a ranges in which the waves move, and the ranges are determined by the sequence of Fibonacci numbers.
