Elliott wave theory in Forex

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Today we'll study about Elliott's wave theory in Forex.

Welcome to the Elliott theory overview. Elliott wave theory is a method of analysing cycles in the stock market. It's probably the most all-encompassing, sophisticated form of technical analysis ever developed. You don't have to know all the details, but we will cover what we feel is essential to a successful trader. It's based upon identifying patterns in the stock market to identify where the cycle may repeat by understanding the patterns and where the market is in the current cycle. Elliott theory can be used to forecast future market movements, type of Elliott, wave price movement motive and corrective patterns. In Ellie wave theory, price movements are categorized relative to the more significant trend; there's the long-term trend clearly to the upside. The motive is when prices move in the direction of the larger trend, and the corrective moves are when the prices move counter or against the larger trend. So in the example again, you can see the motives are in the direction of the upward movement. The correctives are down another motive to the upside, and those shows you that the two motives are moving in the direction of the overall trend, which is up. The corrective is moving in the opposite direction or down. In that instance, remember. Bullish and bearish markets have the direction of motive and corrective movements that are opposite. In other words, when you have an upward trend, the motive moves are to the upside, but the corrective move is down. However, when you have a down-trending market, the motive moves, or to the downside, the corrective move is actually to the upside. People often get stuck with the word correction or corrective as an always downward move, but not an alleyway. In Elliott, corrective moves are just a move against the larger trend mode of waves.

Moving with the larger trend, the impulse move is one of the motive patterns, and that's the traditional five-wave pattern that most people see. It's also the one's that are most talked about, but there's also a bit more of a complex pattern known as a diagonal. There are three primary corrective patterns: there's a zigzag flat and a triangle. Zigzag is a three-wave directional pattern. The flat is also a three-wave pattern, but basically, it's a sideways or non-directional pattern with support and resistance levels, but you just move it in a sideways manner. The triangle is a breakout formation consolidation. So the move is consolidating from a larger area down to a smaller point, yielding the potential breakout from the triangle. But all three are known as corrective patterns, basic cycle structure, an idealized, eight wave structure, the combination of a motive wave and a corrective wave is the general structure of the complete elite wave cycle. So here we have the motive move to the upside, followed by a corrective move to the downside. In this example, the motive move is that traditional five wave impulse pattern that's shown so often, and the corrective pattern is a three-wave zigzag, which is also demonstrated. Quite often, Elliot noticed that the market repeated this 5-3 structure again and again, and this became the foundation of his theory.

Understanding degrees waves within waves.

 The term degrees relates to the fractal nature of Elliott wave patterns, which means, if you take any single part of a pattern and zoom in on it, you'll find that a pattern can also exist at a lower level or lower degree. Let's take a simple pattern. This is a common five wave impulse pattern. Let's assume that the time it took to occur was one year, so from what will be labelled as a zero point to the end of the wave. Five is a year in time, so within those waves, lots of things could be going on. Perhaps there's a five wave impulse pattern within wave one, a three-wave corrective pattern in the two, another five-wave pattern in wave three, a little bit longer. Taking more time, little stronger, wave three another corrective zigzag in the wave four and then finishing off with another wave five patterns to the upside within the wave five, so waves within waves patterns within patterns. Now, these patterns are described as being of different degrees. The larger pattern that took a whole year would be a primary degree impulse pattern, while the last leg of that pattern that took only weeks to months would be an intermediate degree impulse pattern. This concept of degrees is one of the reasons why people can be confused about Elliott wave cows. People can be focused on different degrees and, therefore, disagree about the current wave count. 

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