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What is Elliott wave theory?
Elliott wave theory is a method of technical analysis that looks for red current long-term price patterns related to persistent changes in investor sentiment and psychology, the theory identified as impulsive waves that set up a pattern and corrective waves that oppose the larger trend.
The Elliott wave theory was developed by Ralph.nelson, Elliott to describe price movements in financial market, in which he observed and identified recurring.fractal wave patterns wave can be identified in stock price movements and in consumer behavior investors trying to profit from a market trend could be described as” riding a wave” a larger, strong movement by homeowners to replace their existing mortgages with new ones that have better term is called a refinancing wave.
How do Elliott waves work in our trade?
Some technical analysts try to profit from wave patterns in the stock market using the Elliott wave theory, this hypothesis says that sock price movements can be predicted because they move in repeating up and down patterns called waves they are created by investor psychology.
The theory identifies several types of waves including motive waves, the subject can not all traders interpret the theory the same way to agree that it is a successful strategy. The whole idea of wave analysis itself does not educate to a regular blueprint information, where you simply follow the traction, unlike most other price information, wave analysis offer signal into text dynamic and helps you understand price movements in a much deeper way.
The Elliott wave principle consists of impulse and corrective wave at its core
Impulsive wave consists of five sub-wave that make next movement in the same direction as the trend of the next largest degree this pattern is the most common motive wave and the easiest to spot in a market, like all motive wave, it consists of five sub wave three of them are also motive waves, and two corrective waves .this is labeled as a5-3-5-3-5 structure, which was shown above
Corrective wave-consist of three, or combination of three, sub wave that make at motion opposite to the trend of the next largest degree like all motive waves, its goal is to move the mark in the direction of the trend
Also, like all motive consists of five sub waves the difference is that the diagonal looks like either an expanding or contracting wedge .also the sub-wave of the diagonal may not have a count of five, depending on what types of diagonal is being observed.as with the motive waves, each sub wave, and sub wave three of the diagonal may not be the shortest wave.
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