“What exactly is the Elliott Wave Theory? In essence, it is a theory of price movement which states that the price of any given stock/commodity/currency pair in a free market will travel in wave-like advances and recessions, in a semi-cyclical fashion. Simply put, it holds that prices of actively traded securities move in wave-like motions in an alternating pattern that normally involves three steps forward for every two steps back.”
Sounds complicated? Well, it isn’t. What I am trying to present you in this chapter is one of the most well known trading theories, developed by Ralph N. Elliott and applied/researched/tried/used by many traders in this world. I actually think there is not one trader that never heard in his trading life about the Elliott theory. Of course it has it flaws and actually there is a saying that if you take a chart and you show it to ten different Elliott waves traders, you will get ten different answers and all are right.
But exactly this is the beauty of it, as one scenario eliminates another, and so on, so unless you try for a top-down analysis on a currency pair, meaning starting with higher time-frames and ending with the lower ones, you are totally lost.
In short, Elliott theory deals with a sequence of five waves up, corrected with three waves down. That’s it. In the recording coming with this sub-chapter will try to illustrate this basic thing.
The complicated part of the theory comes in the form of identifying the cycles/super-cycles/mini-cycles, as each wave of those five to the upside and three to the downside has a structure formed of five waves of a lower degree, respectively five/three waves of the same lower degree. Also there are to be met in here lots of new concepts, like leading diagonals, ending diagonals, zig-zags, double and triple zig-zag, complex corrections, etc. How to properly identify one of the above actually makes the beauty of Elliott Waves Theory.
Book recommendation: Cliff Droke, Elliott Wave Simplified, 2000
Cliff Droke, Elliott Wave Simplified, 2000