Elliott Wave | Saturday, 19 April 2008 21:40 UTC
The Elliott Wave Principle, developed by Ralph Nelson Elliott in 1930s and 40s, is a powerful analytical tool that is still being used for forecasting stock market behavior. The basic concept of this Principle is that stock market prices rise and fall in distinct patterns and that those patterns can be linked together into waves.
Since it was first published, this classic guide to the Elliott Wave Principle has acquired a cult status globally among technical analysts. With subsequent new editions, the contributors have refined and enhanced the message of the original publication while retaining all the predictions from past editions.
Elliott Wave Counts may be summed up as follows:
Wave 1 is normally the most weak of the impulse waves. It is based on short covering of the bears from a previous move. The next Wave is created at the end of the first Wave and after the currency pair is sold off.
Wave 2 comes to an end when the market fails to make new lows.
Wave 3 is the most lengthy and most strong of the impulse waves. This leads to strong currency buying or selling in the trend's direction that usually starts slowly, but tends to accelerate as it breaks to new highs above the top of Wave 1.
A correction will occur, especially after a strong trend. Traders will then start making profits, paving the way for Wave 4.
Again, the currency pair will rally ushering in the Wave 5 rally. This Wave is usually supported by the retail traders and not institutional buyers and tends to lack the momentum generated in the third Wave.
This is in a nutshell Elliott Wave analysis can be deployed to enhance traders forex swing trade evaluations. A closer look into the Elliott Wave theory and other strategies could be useful for traders and enable them to use these as tools for increasing their forex swing trade opportunities.
When evaluating the Forex market for swing trade opportunities, the focus should be placed on forecasting directional changes for a given currency pair, relying on technical analysis. In this analysis there are different indicators. The most reliable tool used to predict Forex market swings is Elliott Wave analysis that can be used to identify trends and countertrends, continuation and exhaustion of trends and also to evaluate the potential of pricing targets of a trend.
Elliott strongly believed that the market's movement was a direct result of the mass psychology of the time and that the stock market is a fractal that is an object similar in shape, but at different scales. An apt example of a natural fractal is a stalk of broccoli. The stalk and individual branches look strikingly the same because the branches are smaller in scale. According to Elliott this mass psychological move resembles the herding tendency in human beings.
Summing up, the market price actions are not the cause of economic growth or slow down, but the reflection of the mass psychology of investors. If the mood of the investing public is upbeat then a bull market ensues. This is counter to what most individual perceive, that is because there is a bull market the mood of the investing public is upbeat.
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