Elliott Wave Principle
The Elliott “wave analysis” is used by many forex traders. It’s not a crystal ball, but it can help you to accomplish three crucial goals:
- Identify the trend
- Stay with it
- Know when the trend is likely over
The Elliot Wave theory was named after Ralph Nelson Elliott, who concluded in his book Natures Law that the movement of financial markets could be predicted by observing, and identifying a repetitive pattern of waves.
Elliott came to the conclusion that all natural phenomena are cyclical… to include the financial markets. Based on rhythms found in nature, the theory suggests that the market moves up in a series of five waves and down in a series of three waves.
The difference between the Elliott Wave Principle and other cyclical theories is that his suggests no absolute time requirements for a cycle to complete. It claims to be able to predict the market… but gives no objective way of doing it in practice.
Market prices are a reflection of the supply and demand fundamentals incorporated with human psychology. This sounds simple but it is actually a complicated equation… which is impossible to predict in advance.
Trading markets via technical analysis is all about putting the odds and probability in your favor, but it most certainly is NOT a way of predicting the future.
Nevertheless, the Wave Principle is highly regarded as an analytical tool. Many traders abandon it when they trade in real-time… mainly because they don’t think it provides the defined rules and guidelines of a typical trading system.
This might prove unfortunate because when all is said and done this is truly a “system” and it can show the trader enough information with respect to placing protective or trailing stops.
Technical studies can pick out many trading opportunities. By using the Wave Principle, some traders claim to discern which ones have the highest probability of success.
It is quite possible that these traders will enjoy a better basis for understanding current price action… even though the Wave Principle itself cannot claim absolute prognostication.
The Forex marketplace is huge… and there are any number of excellent automated trading systems and forex courses available. Enhancing your chance for success by including use of the Wave Principle might make sense at some point.
