Essentials of the Elliott Wave Basics
Wave Theory Articles
Wave Principle works on the basic fundamental that a markets
prices have a tendency of moving in waves of five towards the larger
trends and waves of three in the smaller ones. When an up trend is in
play, one will notice that a three wave decline will follow on the
heels of a five wave advance. Each of these patterns has a name and the
five-way advance is called the impulse waves and the three wave ones
are called corrective waves.
Elliott waves appear on all forms of charts, from those that are based
each month right up to those that are one-minute charts. Waves of a
lower degree when formed are also part of a higher degree. Elliott
waves are often taken into consideration when it comes to currency
trading. In such cases, they should be thought of in three degrees –
minor, where they are completely visible in a chart of 15 minutes;
intermediate, where their presence is seen in hourly charts and finally
the major waves that can be seen on daily charts. You will see that the
Intermediate waves will have minor waves in them and the major waves
will have intermediate ones forming them. If you want to determine a
long term market direction, it would be best to make use of major
impulse or corrective waves to help you ascertain the direction the
long term market is taking.
Put in your trades at the beginning and exit them at the point of
intermediate impulse that forms part of the major waves. This again has
to be used with the minor waves that are in the intermediate ones. If
you want to get into specifics and trade on an hourly basis, then you
will need to use daily waves to determine the direction of the existing
trend as well as 15-minute waves for timing when you make your trade
entries and exits.
The principle of Elliott
wave works ideally in markets that have a massive public
following. The forex market is really huge and thanks to its size, its
enormity and the liquidity with diversity that it offers, there is
often a clear display of wave trends. These patterns can be used by a
trader to their advantage giving him a high-reward/low-risk or
high-probability entry point, depending on the personal preferences
that he puts forward.
In the forex market, the Elliott wave system is particularly useful
because, major waves are often developed in close conjunction with
interest cycle rates of the market. Potentially profitable Elliott
wave setups take place almost 50 per cent of the time.