In this article, we will talk about one method of technical analysis that is now one of the most popular among traders – wave analysis. Let’s study the basis and origin of this method in detail.
… Elliott can almost predict the basis of modern science about natural processes based on the principle of fractions …
Wave analysis was discovered by world-renowned writer and analytic Ralph Nelson Elliott 1871–1948. He is also the author of a series of articles and books that have become best-selling books called “Nature’s Law – The Secret of the Universe” published in 1946.
The graph of changes in market instrument prices has a wave structure. This form of price fluctuations is nothing but a graph that shows changes in mood from a number of market participants. Someone is more often driven by his emotions, especially if he is a trader. And strong emotions are revealed in the field of human activities related to finance. Where there are two possibilities for losing your funds and making a profit. Trading in commodities and the stock market can also be linked to that field. Then, from the late 70s last century the Forex market was also included with them.
Human emotions gradually change from optimism to pessimism, from an euphoria and belief in the future to uncertainty to disappointment, fear and panic when trading. Sometimes negative emotions such as fear and greed control market participants, which is why unexpected changes in the price of trading instruments may occur on the market. These changes look like waves on a graph of price fluctuations. Elliott says that there are a number of wave models (patterns). He gives special attention to the sequence of Fibonacci numbers.
Basics of wave analysis
The main elements of Elliott’s wave theory are geometry and arithmetic of Fibonacci numbers. According to him, there is a specific clear logic in wave rotation, which provides an opportunity to predict future changes in the mood of some people and to forecast price changes in particular. The main role in the structure of price movements illustrates five types of motives and three types of wave improvements.
According to Elliott, there is a certain logic that is clear in wave rotation that gives an opportunity to predict the mood changes of many people in the future and specifically to predict price changes.
Another feature of Elliot wave
Another feature of wave and elliot waver analysis is the ability of this method to form large price movements. And also create bigger wave models using a collection of simple waves that are similar to them. This fact shows the natural fraction of waves. Thus, Elliott can almost predict the basis of modern science about natural processes. Which is based on the principle of fractions in half a century. By using this knowledge, it is possible to clearly identify and describe. Descriptions of the components of the chart model, as well as waves that repeat themselves in market conditions.
Elliott wave analysis
Elliott himself and his followers named and described these models, describing the relationship between them. This phenomenon was dubbed by him as the “main wave”. At present the main wave is not a science, but still trying to reach this level. And it is very possible that Elliott’s wave theory will become a standard science in the near future.
However there is a false belief that the Elliott Wave Principle can only be used for market analysis. And also for analysis of fluctuations in the price of trading instruments. This belief radically reduces the value and prospects of the theory itself. According to Elliott, human activity and market activity are only one part of it. In addition, there are still several problems with the application of Elliott’s theory caused by a large number of terms exchanged. This arises because Elliott’s books and books belonging to his followers are translated by different people at different times. That is why many criticisms are directed at this theory.
Let’s hope that all these problems will be resolved and Elliott’s theory will be distributed more among traders.