Profit Using Elliott Wave Theory

Elliott Wave Theory is a pattern-recognition trading method discovered by Ralph Nelson Elliott in the late 1930s. This theory is based on the belief that the financial markets follow certain predictable patterns. A pattern of five up waves and three down waves that form a complete cycle of eight waves. Each of these cycles makes up one wave in a larger cycle in an ongoing expansion of cycles. Elliott Wave theory is an adaptation of the original technical market analysis of Dow Theory. The Elliott Wave Theory is based on certain human behavior patterns. In its simplest form, Elliott Wave Theory is as follows: Every action is followed by a predictable reaction. Although it was developed based on stock market data and charts, the theory is now also applied to forex trading. Elliott Wave Theory is now widely used to study the markets. Some experts say that Elliott Wave theory is still the best way to predict future market direction.

Patterns

Generally, the Elliott wave theory says that market price moves in recurring wave patterns. Elliott was able to spot unique characteristics of wave patterns and make detailed market predictions based on the patterns he identified. Elliott believed that the number of waves that exist in the stock market's pattern is reflected in the Fibonacci sequence of numbers. He stated that the waves in the market were due to the mass psychology of the trading public. This mass psychology always showed up in the same repeating patterns, which he then divided into patterns he called "waves". He spent years studying these wave patterns. He identified 13 wave patterns, which occur in market price data again and again. The basic patterns in Elliott's theory are what are known as impulsive waves and corrective waves. An impulsive wave, which always goes with the main trend, has five waves. These 5 wave patterns happen mostly in Impulsive markets. The reactions to these trends similarly form a 3 wave pattern. One interesting thing about Elliott's Wave Theory is that each 5 - 3 wave is made up of other 5-3 waves. And each of these smaller waves is also made up of a 5-3 pattern. The same thing is happening, just on different scales. These wave patterns reflect the emotions of the people in the market place. It is a mathematical picture of crowd psychology. You can use the specific characteristics of the wave patterns to make market predictions.

Trading

Elliott Wave theory can complement any trading methodology. All indicators and technical tools fail at various times and so should only be used in forming a trading decision rather than being used stand-alone. Adding Elliott Wave Theory to your arsenal can improve your overall trading performance. One way to use Elliott Theory is to find specific parts of the theory and incorporate them into a workable trading system. I would recommend taking a course on Elliott Wave Theory. There are many on-line courses available. By taking a course, you will better understand the theory and the mathematical mysteries in the markets. Once you learn to see the wave patterns and identify them correctly, you will see how they apply in every facet of trading. You will learn to be able to use those patterns to make better trading decisions. By adding Elliott Wave Theory to your trading, you should be able to improve your overall trading ability.

Elliott Wave Theory can be a bit difficult to understand at first. But once you understand how to identify the patterns in the market, it can be a great tool. There are many books available, as well as many online courses in Elliott Wave Theory. I have studied and used Elliott Wave Theory and can tell you that these patterns do occur and that the method has merit. If you are interested in learning more about Elliott Wave Theory, I would recommend doing some research on Robert Precter and his teachings. I can personally recommend Richard Swannell's Refined Elliott Trading method (http://www.elliottician.com) I have had the pleasure of being mentored by Mr. Swannell.

Elliott Wave Theory is an idea that market behavior is based on predictable waves rather than random timing. In its simplest form, Elliott Wave Theory is the study of mass behavior in predictable patterns. Elliott Wave Theory is a powerful technical analysis tool that can be used to forecast the markets. Although this information is valuable, it is just one piece of the technical analysis puzzle. The smart trader will use this theory along with several others to get a better picture of the market. Elliott Wave theory is said to be one of the best ways to predict future market direction. I can agree.

To your success...