Wave analysis Forex. Elliot's Wave Theory on Forex Market How to Condure Wave Analysis Forex

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 market, like 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:

1. Each oscillation has its own consequences.
2. Five waves move in the direction of the dominant trend, followed by three adjustment waves.
3. The movement of these waves is called "wave oscillation 5-3" and it completes the cycle.
4. Each previous wave oscillation 5-3 becomes part of the next higher wave oscillation 5-3.
5. 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.

- Graphic method technical analysisallowing to assess 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 chance that this moment A 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 divergence - growth / fall price chart 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 or the Elliota wave principle 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 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 of Elliott It is very popular among traders, as it helps to accurately determine the further direction of price movement and get high profits.

Elliot waves, named so in honor of the discoverer of this theory, are a fundamental element in the Forex market structure. The analysis based on these waves is probably the most accurate. Although at the same time is one of the most complex types of market analysis.

The wave market structure was discovered for the first time in 1934 by an accountant Ralph Nelson Elliot. After several years of illness and care from work, he focused on learning the basics stock market. As a result of these studies, Elliot waves were opened and a wave theory was developed.

During monitoring of market trends, Elliott noticed that they obey certain sentiment arising from the psychological perception of the situation by the bidders. Market B. different periods Tested six stages of psychological changes:

1. Expansion
2. Enthusiasm
3. Euphoria

After these three stages, the market fell into the next three:

1. Soothing
2. Decline
3. Depression

As a result, such changes in the price charts are formed wave-like figures. As it turned out, the construction of these waves has a completely logical pattern.

These observations were based on the method that got the name of the wave analysis of the market.

Basic wave analysis postulates

Since waves are located in a natural sequence, this makes it possible to predict the origin of each new wave and, as a result, the direction of the trend movement . This is the main postulate, which characterizes the wave analysis of the Forex market and price behavior on schedules.

The main principle, which is the basis of the wave theory is the principle of fractality. According to its definitions, a set of several waves of a smaller order located in the junior time interval forms one wave with a greater duration, which is located in the older timeframe.

In turn, this wave is part of a model of several waves in the process of forming an even larger wave of Elliot.

• Bear tendency - when the trend is inclined to decline.
• Bull tendency - when the price intends to rise.

The next principle, in accordance with which Elliot's waves are formed, is that after active growth, the recession period should be required.

Alternation of waves of different orientation - required condition forming wave patterns. In addition, Elliot was observed another circumstance - the wave models also replace each other after the growth stages and price drops.

The formative trend trend wave model is necessarily replaced by bullish moods in the market and, accordingly, bull formation of waves.

Conducting the relationship with fundamental indicators, the author of this theory was derived an axiom that no economic news could be a fundamental factor for the formation of a new trend in a long period.

And one more circumstance was taken into account when developing the theory of wave analysis and used to this day - the waves may begin and end with different volume of trading and different levels of volatility. However, for individual waves in patterns there are features inherent in them:

• The second waves most often have a reduced volume.
• Third Waves of Elliott show usually high volume transactions
• The fifth wave is one of the most dynamic.

The use of this theory and Elliot's wave itself as an analysis tool can occur with different purposes.

Look at the short video from which you will learn the basics of wave analysis:

Categories of Elliota waves

The classification by which Elliot waves differ on the trend direction. In addition, all waves have their own value for the market and analysis. Some of them are formed in the direction of the main trend, and have a longer stage. The second part is formed in the opposite direction. Therefore, it is customary to distinguish:

I. Impulse waves

II. Correctional waves

Based on these definitions, the wave models of the trend, which, taking into account the principle of fractality, are also formed, which, taking into account the principle of fractality, are elliota's waves - longer.

Pulse waves consist of five smaller waves and are formed in the direction of the main trend. At the same time, it is completely no matter what moods prevail in the market - a pulse wave can be part of both a bearish and bull market.

The wave analysis of Elliot in each Pyatyatovka implies the presence of three impulse waves and two correctional.

The correctional wave, in turn, consists of three waves, two of which are impulse, and one is a correctional one. As a rule, correctional waves occur after passing the complete distance of the pulsed wave.

Sets of pulse and correctional waves have the ability to form wave patterns, or figures:

• Wave lengthening
• Double Pass
• Pulse
• Zigzag
• Triangles
• Vimpels
• Diagonal triangles
• Multifunction of Elliota wave
• Klinia
• Truncation

This not complete classification of wave models is complemented by separate varieties of each pattern.

Look at the video about what Elliota wave is and how the price movement structure is formed. This will help you in predicting the movement of currency exchange rates and increasing the profitability of your trading.

In addition to those shown in this section of the characteristics, it is necessary to note another property of the Trend Waves on Elliot theory - they can characterize the wave analysis of the market by narrowing or expansion.

Practical use of wave theory

In currency and stock trading, a wave theory can be used as a basis or additional funds in the structure trade Strategy. Most trading tactics using fractal principles on which Elliot waves are based, have excellent indicators on trade profitability.

In some cases, the trader can use these waves of Elliot as a trend completion forecast to prepare for the formation of a new trend and optimize deposit management.

In other situations, the wave analysis is used to recognize the already formed trend and is used to confirm the forecast and more rational entry into the market.

Also, on the waves, you can determine the current state of the market at the time of the forecast.

The main idea of \u200b\u200bthe wave analysis of the Forex market is that the price movement in any market is peculiar to a wave-like nature, which makes it possible to predict the development of the situation in the future. The wave analysis of Forex from the leading world brokers provided to the client helps to calculate the preliminary variations of the continuation of price movement, the minimum and approximate potential of the available options, and knowing the signs of their confirmation - to use any of them to extract profits, clearly realizing which wave is accustomed to receive a profit, and lead this particular wave before closing its trading operation. There are two types of waves: impulse and corrective, as the price movement is divided into two wave groups:

• Impulses - Moving price waves or up, or down (numbers marked)
• Correction - Waves that serve for the "adequate" reaction to the impulse (marked by letters)

Identification of the wave when it is applied to the price schedule

Wave analysis of the Forex market allocates several ways to determine the wave, when applied to the schedule: when the price is closed, at a maximum price, with minimal, or by its average value. For newcomer traders, just started using the wave analysis of the Forex market, the optimal way of applying the price of a chart is to compound the maximum price with minimal, and vice versa minimal with the maximum. In this case, the designation of the wave becomes visible, in addition to everything, the trader quickly masters the skills of building charts.

To reduce the risk of loss with wave forex analysis and for the correct calculation of the size of the stop loss, special attention Must be paid to the length of the waves. Forex wave analysis experts confirm that the longer the pulse waves are, the longer, respectively, and corrective.