The Elliot Wave Theory is a method of market analysis created by Ralph Nelson Elliott in the 1930s. It states that crowd psychology moves markets, and mass behavior repeats itself in wave-like patterns. This theory has been used to predict markets successfully Arrow Indicator for almost 100 years now, even though it was originally developed before the Great Depression.
This article explains how you can use the Elliot Wave Theory to anticipate changes in market trends, regardless of whether you are trading stocks, crypto currencies or any other financial instruments.
A quick intro on Market Waves
In his book “Nature’s Law – The Secret of the Universe” , R. N. Elliott described a natural order that governs the actions of investors. He noticed that markets exist in repetitive patterns and trends, which are at their core driven by human psychology.
Ralph Nelson Elliott believed that market prices unfold in specific patterns, No Loss Hedging Strategy as part of a collective behavior which is ruled by something similar to the wave theory of physics. If you’ve ever watched ocean waves form ripples on a beach, you can probably understand how this works intuitively.
Here’s what Elliot had to say about it:
“Markets swing between fear or complacency extremes – both attitudes are born from human emotions , plus greed or hope . When any group (a crowd) becomes too interested in buying they reach a point where more buyers creates more buying- fueling further advance till additional buyers can’t be enticed. This is the top of the market advance. The emotional force has expended itself and buyers, who were originally interested in buying, H4 Forex Trading Strategy now become sellers”
In other words, when a market moves up too fast ( fueled by greed ), it will eventually top out as more and more people buy in, until there are no more buyers left to push prices any higher. At this point the market will start to move downwards ( fueled by fear ), as sellers take profits and exit the market.
This pattern repeats itself over and over again, creating what Elliott called “market waves”.
The Elliot Wave Theory
Ralph Nelson Elliott developed his theory in the 1930s, and it has been used successfully by traders to predict markets ever since.
The basic premise of the Elliott Wave Theory is that markets 7 Star Day Trading Strategies move in waves, and that these waves follow a specific pattern. There are 5 main waves in an Elliot Wave: three up waves (impulse waves) and two down waves (corrective waves).
The following diagram illustrates how this works:
In the diagram above, you can see how the market moves Breakout Trading Strategy in 3 distinct phases: an impulse phase (upward wave), a correction phase (downward wave) and a consolidation phase (flat or sideways wave).
The Elliott Wave Theory can be used to predict future market trends by analyzing the current trend and estimating where it is likely to go next.