It is obvious that forex market is considered to be an ever-changing market. Traders might find it challenging when trading forex because of its volatility. In this article, I will give you some basic facts about Elliott Wave Principle founded by Ralph Nelson Elliott in the 1930s. In fact, Elliott reckons that stock markets are repetitive and quite chaotic. Applying Elliott Wave Principle with regulated forex brokers is still a new idea to many forex traders. Therefore, we will delve deeply into its characteristics.
How do we understand about waves?
The movements of prices, according to Elliott, are attributed to minds of investors, leading to the fact that swings are appeared in the same fractal patterns when it comes to markets like forex. Basically, the priciple of Eliott works based on the assumption that prices will change in waves. In fact, fractals work as mathematical structures that they are repetitive. In addition, he also realized that traders can certainly capitalize on repetitive patterns as indicators for predicting movements of markets in the future.
How the principle works?
Many forex traders still fail to understand how Elliott Wave Principle work. Therefore, I will elaborate on this principle according to some factors.
The 5 waves follow the chief trend and are followed by three waves. It can be understood that the movement will become two subdivisions when any high movement makes by the next wave. This pattern is normally considered to be stable pattern.
To give you a better explanation, you should look at the two following pictures with 8 waves.
When we look at this chart, all of the five waves create an impulse, while points A, B, and C form a correction. In terms of the five-wave, it makes wave 1 at the next-biggest level. It can be noticed that the corrective wave in reality has three notable price changes.
According to the above chart, number 2 and 4 are called corrections.
You should know that the waves A and B alter in the way at a higher level and are abrupt They include 5 waves. In terms of the wave B, it’s basically a counter-trend and is comprised of 3 waves.
As we can see in those images, the movement of the 5 waves is not upward, and three waves do not move downward.
The degrees of waves
There are nine degrees of wave which are Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette and Sub-Minuette in Elliott Wave Principle as they are identified by Elliott.
Due to the fact that these waves are fractal, wave levels enlarge enormously and small beyond 9 waves above.
In order to apply this principle, it is a must for traders to determine an upward-trending impulse and they can sell or shorten any position since the patterns complete 5 waves and the reversal is pending.
In one word, although scientists can know a tree like a fractal, not all people can foresee the track of every branches. Speaking of Elliott Wave Principle, it enables traders to make wise transactions and make money more easily. However, traders fail to use this method as they can not read charts. Therefore, if you want to make use of this principle, you must have a good knowledge about charts. This could be the best forex system for you.