Forex Profit Strategy 101: Fundamentals of Elliott Wave Principle
In 1939, Ralph Nelson Elliott proposed that behavior of stock market price,
thus human crowd psychology is based on three elements: pattern, ratio and time.
Furthermore, it was discovered that Elliott Wave structure is co-related with Fibonacci Ratio.
- Why you need to analyze wave:
Among many Forex technical analysis that perceives in the view of price value by buy and sell volume, wave analysis was developed to find each exact market movement. All baby steps of technical analysis were formed to find the current trend, because a technical analysis cannot function without knowing the trend. That is why wave theory is a worthy investment to take time until thorough understanding. If you do not get the hang of it, you are likely to find yourself trapped in a series of unprofitable trades.
- Summary of Wave theory:
Stock market repeats itself in a cycle 2 division, a Motive wave and a Corrective wave. This cycle has total of 8 waves, which is consisted of 5 waves in a Motive (impulsive) wave (I) and 3 waves in a Corrective wave (II).
A motive wave (I) always progresses in the direction of the trend of larger degree, and it is sectioned into five smaller waves. Waves 1, 3 and 5 are “trend-following” sub-waves, while waves 2 and 4 are “trend-retracing” sub-waves.
A corrective wave (II) always progresses in the direction against the higher degree trend, and it is sectioned into three smaller waves. Waves A and C are following the direction of correction, whereas wave B is going against the corrective trend.
The 8 waves are co-related with Fibonacci Ratio 38.2% (0.382), 50% (0.5) and 62.8% (0.618)
- Things you must remember about Elliott Wave Principle:
Motive (Impulsive) wave
We’ve covered the basics of Elliott Wave Principle,
and since this topic needs more explanation,
there will be a series of follow up articles.