Discover Some Magic to Beat The Forex: The Elliott Wave Theory for Forex Markets
Forex Markets: One of the most known and understood at least technical analysis in the Forex market theories is Elliot Wave Theory. Developed in the 1920s by Ralph Nelson Elliot as a method of predicting trends in the stock market, the theory Elliot Wave fractal mathematics to movements in the market is applied to make predictions based on public behavior. In its essence, the Elliot Wave theory states that the market – in this case, the forex market – moves in a series of 5 swings upward and 3 reverse changes constantly repeated. But if it were that simple, everyone would be making a killing by catching the wave and ride it until just before it crashes on the shore. Obviously, there is much more than that.
One of the things that makes Elliot wave crest so difficult is the time – all the major wave theories, is the only one that does not put a time limit on the reactions and rebounds of the market. One In fact, the theories of fractal mathematics makes it clear that there are multiple waves within waves within waves. Interpreting the data and finding the right curves and crests is a complicated process, which leads to the claim that you can put 20 experts on the theory of Elliot Wave in a room and never come to a agreement on which way a stock (or in this case a currency) is directed.
The essence of Elliot Wave
* Each action is followed by a reaction. It is a standard rule of physics that applies to the behavior of the masses in the Elliot Wave theory is based. If prices drop, people will buy. When people buy, the demand increases and supply decreases driving prices back. Almost every system that uses trend analysis to predict the movements of the currency market is based on determining when those actions will cause reactions that make a profitable business.
* There are five waves in the direction of the main trend followed by three corrective waves (a “5-3” move). The theory Elliot Wave is that market activity can be predicted as a series of five waves that move in one direction (the trend) followed by three “corrective” waves that move the market back to your starting point.
* A 5-3 move completes a cycle. And this is where the theory begins to be truly complex. Like the mirror reflecting a mirror that reflects a mirror reflecting mirror, each 5-3 wave is not only complete in itself, is a superset of a smaller series of waves, and a subset of a set 5-3 more waves is the following principle.
5-3 * This movement then becomes two subdivisions of the next largest wave 5-3. In Elliot Wave notation, the 5 waves that fit the trend are labeled 1, 2, 3, 4 and 5 (impulses). The three correction waves are called A, B and C (corrections). Each of these waves is composed of a series of waves of 5-3, and each consisting of a series of waves 5-3. The 5-3 cycle being studied is an impulse and correction in the next ascending 5-3 series.
* The underlying 5-3 pattern remains constant, but the time interval of each can vary. A wave of 5 to 3 May take decades to complete or may be higher in a few minutes. Traders who are successful in using the theory of Elliot wavy trade in the currency market say that the trick is in the trades of time to coincide with the start and end of impulse 3 to minimize risk and maximize profits .
Because the timing of each sequence of waves varies so much, using the Elliot Wave theory is largely a matter of interpretation. Identify the best time to enter and exit a trade it depends on your ability to see and follow the pattern of larger and smaller waves, and know when to trade and when to exit based on identifying patterns.
The key is in interpreting the pattern is correctly in finding the right starting point. Once you learn to see the wave patterns and identify them correctly, say those who are experts, you’ll see how they apply in every facet of forex trading, and be able to use these patterns to trigger your decisions if you are day trading or in it for the long term.