Deciphering Forex Trends: The Elliott Wave Principle

Forex And The Anatomy Of An Elliot Wave

As you enter the world of Forex you will immediately feel the basic need all Forex traders have: A method or technique to forecast the market behavior with the highest possible accuracy. There are several methods and techniques that traders have researched through the years with this goal in mind. These techniques are based on different indicators and approaches to trading, and each one has had its own successes and positive outcomes when applied to specific market conditions, but there is no doubt that among the most successful of these techniques, you will find Elliot Waves as one of the best concepts and methods you can learn.

Elliott Wave Theory

Ralph Nelson Elliot observed that the markets have strong trends that seem to follow a repetitive pattern in all the different time frames you can trade and after analyzing a great number of charts he discovered in the late 1920s that the markets move in a repetitive manner far away from a chaotic behavior. He divided market movements into trends, corrections, and sideways movements. With these distinctions being made he then assigned a wave terminology to these periodic movements; he called the trend movement an Impulsive Wave and a correction a Corrective Wave.

To have the formation of an impulsive wave we need five constituent waves “inside” this wave. This will be three waves in the direction of the trend and two corrections against the trend. But considering the fractal nature of the waves found by Elliot, then each of the smaller impulsive waves will have other five waves “inside”. In the case of the corrective waves, they will be formed by other three smaller waves. Two in the direction of the correction and one in the direction of the trend.

Considering the repetitive nature of Elliot Waves you can make a pretty accurate forecast of what the markets will do next, with the huge advantage this represents in your daily encounters with the currency markets.