Elliott Wave Theory and Its Relevance in Modern Forex Markets
Are you familiar with Elliott Wave Theory? Over the past decade, several people have turned to forex trading as a lucrative hobby or career. Day traders are the majority, and as a rule, they use technical analysis to help them understand how to trade better since most Forex traders are day traders. Because of this, many Forex traders are interested in technical analysis and the tools available to improve it.
By utilizing the Elliott Wave Forex Theory, you will be able to devise a trading strategy that will be effective.
How does Elliott Wave Theory work?
The basics of Elliott Wave Forex Theory are surprisingly simple. Ralph Nelson Elliott discovered that the stock market trades in repetitive cycles rather than unpredictable ways in the early 1920s. According to Elliott Wave’s predictions, markets respond to the prevailing psychology of the masses and investors’ reactions to external factors.
As a result, Elliott soon discovered that the rise and fall of mass psychology followed the same repetitive patterns; these patterns he termed waves. With the fractal nature of the market, Elliott could analyze and interpret the market to a much greater extent than Dow Theory, which states stock prices move in waves.
Application of the Elliott Wave Forex Theory
Price movements follow five patterns according to Elliott Wave Theory. It is common to see a five-way rise followed by a three-way fall in an upward trend.
An upward trend involves a five-way fall followed by a three-way rise, known as impulse waves, while the three-way patterns are called correction waves. When prices rise in the ‘impulsive wave,’ the uptrend is in phase one. Investors believe the trend will change at this point, leading to a negative denominator for the price.
The price doesn’t fall much in wave two but rises in wave three, bringing positive news into the market. The fourth wave of price declines due to profit booking, leading investors to become optimistic, which results in positive market news.
The Application of the Elliott Wave Forex Theory for Profitability
Elliott Wave Theory analysis is crucial to maximizing your Forex trades’ profitability.
Based on the psychological factors of brokers and traders, it determines market trends, currency price movements, and market direction.
If you want to learn the tricks of the trade on the foreign exchange market, you can start by applying Elliott Wave Forex Theory profitably. The technical concepts may not be fully explained in one sitting, so you must study them thoroughly.
Typical market theories contain pros and cons, but the challenge is demonstrating their benefits.
Since Elliott Wave analysis cannot provide valuable information about entry and exit points, we should use it as a supportive measurement.
It is a great tool to augment and enrich your trading strategy. You can identify stop-losses and predict market movements with them.
Combining EW oscillator data with indicators such as MACD and RSI will allow traders to determine exit and entry points precisely.
Forex trading follows Elliott Wave Theory rules similarly to stock trading.
In Forex trading, you can go short on currency pairs, which makes this oscillator much more helpful, since stocks are harder to short.
Conclusion
Despite its popularity, Elliott’s waves are praised and criticized in the trading world. Many traders use this oscillator to analyze the markets, but others ignore it. Remember that these are just theories; they have no proven results, so you should use all of EW’s trading recommendations at your discretion. Another essential aspect to emphasize here is that the EW oscillator is widely used, which has given birth to a particular type of analysis called EW analysis. Practicing the EW oscillator and analysis will help you determine if it can enhance your trading strategy.
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