Forex elliott wave analysis

The Elliott wave analysis is one of the methods of technical analysis in trading. This type of forex wave analysis was named after the Wave Theory introduced by professional accountant Ralph Nelson Elliott in his book “The Wave Principle” published in 1938. Nowadays, the Elliott wave analysis is one of the most popular forecasting methods on Forex.

 

Applying the wave principle on the market, a trader can forecast the price behavior at a certain period. This type of market analysis can prove to be a really effective tool for a professional trader. 

 

 

According to the Elliott Wave Theory, a price movement of any currency pair can be depicted on a chart in the form of waves. The waves are divided into three impulse waves that go with a trend and two corrective ways that move in the opposite direction. These waves are labeled with the numbers 1,2,3,4, and 5. When the trend formation becomes less active, the price correction starts. This action is depicted by three waves on a chart. Two of these waves are impulsive and the third one is corrective. These ways are labeled A, B, and C.

 

The main idea behind the Elliott wave analysis is that the price movement is regular. One and the same pattern repeats itself over and over again. When traders apply the Elliott wave analysis, they can foresee the price movement at a certain stage of the trend. If traders enter the market on the right wave and close a deal in time, they can make a profit. To reduce losses on Forex and set a stop loss level correctly, traders should pay attention to the length of the waves. As a rule, the longer the impulsive waves are, the longer the corrective waves will be. The most difficult thing in applying the wave analysis is to define the type of a wave correctly. In order to give an accurate forecast of the price movement, it is necessary to tell apart the impulsive and the corrective forex waves. Usually, the corrective Elliott waves are the hardest to recognize. The Elliott Wave theory is applicable to any traded asset – from shares and bonds to currency pairs.