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Elliot`s wave theory

One of the best known and least understood theories of technical analysis in forex trading is the Elliot Wave Theory. Developed in the 1920s by Ralph Nelson Elliot as a method of predicting trends in the stock market, the Elliot Wave theory applies fractal mathematics to movements in the market to make predictions based on crowd 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 swings back down, repeated perpetually.

But if it were that simple, everyone would be making a killing by catching the wave and riding it until just before it crashes on the shore. Obviously, there’s a lot more to it.One of the things that makes riding the Elliot Wave so tricky is timing – of all the major wave theories, it’s the only one that doesn’t put a time limit on the reactions and rebounds of the market. A single 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 tricky process, which gives rise to the contention that you can put 20 experts on the Elliot Wave theory in one room and they will never reach an agreement on which way a stock – or in this case, a currency – is headed.Elliot Wave Basics

• Every action is followed by a reaction.It’s a standard rule of physics that applies to the crowd behavior on which the Elliot Wave theory is based. If prices drop, people will buy. When people buy, the demand increases and supply decreases driving prices back up. Nearly 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 trade profitable.

• There are five waves in the direction of the main trend followed by three corrective waves (a “5-3″ move).The Elliot Wave theory 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 toward its starting point.

• A 5-3 move completes a cycle.And here’s where the theory begins to get truly complex. Like the mirror reflecting a mirror that reflects a mirror that reflects a mirror, the each 5-3 wave is not only complete in itself, it is a superset of a smaller series of waves, and a subset of a larger set of 5-3 waves – the next principle.

• This 5-3 move then becomes two subdivisions of the next higher 5-3 wave.In Elliot Wave notation, the 5 waves that fit the trend are labeled 1, 2, 3, 4 and 5 (impulses). The three correcting waves are called a, b and c (corrections). Each of these waves is made up of a 5-3 series of waves, and each of those is made up of a 5-3 series of waves. The 5-3 cycle that you’re studying is an impulse and correction in the next ascending 5-3 series.

• The underlying 5-3 pattern remains constant, though the time span of each may vary.A 5-3 wave may take decades to complete – or it may be over in minutes. Traders who are successful in using the Elliot Wavy theory to trade in the currency market say that the trick is timing trades to coincide with the beginning and end of impulse 3 to minimize your risk and maximize your profit.Because the timing of each sequence of waves varies so much, using the Elliot Wave theory is very much a matter of interpretation. Identifying the best time to enter and leave a trade is dependent on being able to see and follow the pattern of larger and smaller waves, and to know when to trade and when to get out based on the patterns you identify.The key is in interpreting the pattern 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 will be able to use those patterns to trigger your decisions whether you’re day trading or in it for the long haul.

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When to open new positions

As trading in Forex includes a high risk ,is always better to know and keep learning all the time technical tips that they ll make trading successful. In this post i ll set a few basic practical tips when entering the forex market.

a).Allways checking the time before you enter.Is always better to get focused in the hours when the major markets are opening and align your trades with the coming trends of the markets.See more about Forex hoursFor example:London opens at GMT 8:00.When your time is 15 to 8:00 GMT and you just think of opening a new trade ,it would be wiser to wait till 8:00GMT and see what trend London brings.

b).Determine the current trend and collect data for the upcoming trend.How to do that:take a good look at all the charts of the currency pair you are interested in,(daily,4hr,1hr,30mnt,15mnt,5mnt,1mnt).See where the indicators are pointing.Are they all pointing to the same direction?Or in some charts they have opposite direction of the others?If they have different directions ,then the best you have to do is to wait until all of the charts get on the same direction and then enter.Learn more about charts

c)Get informed about the daily economic announcements.Allways have an Economic Calendar in front of you while you are trading.As economic announcements can bring very havy volatility in the market is the point a trader should stand by and take advantage of it to make profits.Actualy if a tader trades only when there are announcements to take place ,will make only profits if he gets aligned correctly with the trend the announcement will generate.NOTE:when an announcement is about to come public then the generated trend might go totaly the other way that the charts are indicating. Only by trading using the last tip will make only profits if you alignyour trade correctly.Consider buying me a beer !!!

As well it would be useful for traders to be patient, fight their bad charachteristics like greed and anxiety (we all have a little bit),and allways to try to read the data about the trends.Wish you good trades!

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