Elliott Wave for Forex
Ralph Nelson Elliot, in late 1920s, established a correlation between financial market moves and a pattern, which is a totally disciplined pattern as opposed to any chaotic behavior. He pointed out that this repetitive pattern occurred because of emotions of investors influenced by outside sources/news at any particular time.
He divided the market movements into three distinct groups, trends, corrections, and sideways. He also assigned a wave terminology to these specific periodic movements like trend movement as “Impulsive Wave” and a correction movement as “Corrective Wave”. He also showed that a treading market moves in a “5-3 wave pattern”. The first five-wave pattern is the impulse waves and the last three-wave pattern is the corrective waves. Although the Elliott Waves were first conceived for explaining the market behavior of stock, it can be applied to Foreign exchange as well.
The waves formed can be explained on the basis of market psychology. When you watch an upward move, it reflects many investors feeling that the price of the particular currency will go up and as the current price is low, it is better to buy more. If you find a downward trend followed by this upward move, it says, many investors considered the currency to be overvalued and took profits. This causes the price to go down.
Likewise, there are subwaves inside the wave patterns, where each wave section can again be divided into 5 smaller waves. An analyst can judge the performance of the currency with the Elliott wave patterns. Because of the repetitive nature of Elliot waves, you will be able to make a pretty accurate forecast of how the market is going to behave next.
The major difference between the Elliott wave principle and any other cyclic theories is that Elliott wave do not suggest any absolute time requirement for a cycle to complete. This poses some interpretive challenge for the theory.
June 20th, 2008 at 1:31 am
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June 20th, 2008 at 1:32 am
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June 20th, 2008 at 1:39 am
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June 20th, 2008 at 2:15 am
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June 20th, 2008 at 2:27 am
[...] Forex Recipe wrote an interesting post today onHere’s a quick excerptElliott Wave for Forex June 20th, 2008 Ralph Nelson Elliot, in late 1920s, established a correlation between financial market moves and a pattern, which is a totally disciplined pattern as opposed to any chaotic behavior. He pointed out that this repetitive pattern occurred because of emotions of investors influenced by outside sources/news at any particular time. He divided the market movements into three distinct groups, trends, corrections, and sideways. He also assigned a wave terminolog [...]