Elliott Wave Theory: What is it?

Long before the birth of Pythagoras and Plato, the legendary Hermes Trismegistus claimed in his treatises that everywhere in our life the rhythm principle operates. The ups are inevitably replaced by falls, joy at sadness, day at night, etc. Nowadays many economists have become convinced that this rule works in the economy as well, and Elliott's wave theory, which has proven its worth in practice , Is a convincing proof of this. Thanks to it, many traders manage to earn decent money on the currency and stock exchanges, and since many are now interested in home-based earnings, it makes sense to get to know her better.

Elliott Wave Theory: The Essence and Reason for Popularity

According to this system, developed in the 30s of the last century, any assets on the market are traded in recurring cycles that arise from the emotions and emotions of traders as a result of the release of important news or under the influence of the dominant mood of the majority at any particular time. Elliott's wave theory claims that price fluctuations are not chaotic, but according to certain patterns, and describes in detail the graphic formations that allow us to determine both the direction of the future trend and the expected turning point. Experienced investors have long realized how important Elliott Wave theory is to trading - R. Elliott's book The Wave Principle, which describes its basic rules, has long become a desktop reference book for many analysts and practicing traders. After its appearance in the price mess in the markets, the order began to be overshadowed, which allowed economists to make fairly accurate forecasts of future developments. The main advantage of this theory is that it is universal and can be used within almost any time period. For comparison, we note that Kondratiev's wave theory considers cycles of 40-60 years in length, which significantly narrows the field of its practical application.

The main provisions of the Elliott system

Within the framework of this exercise, it was possible to find out that any trend price movement can be divided into five sections, which are called waves. In this case, three of them are directed toward the main movement, and two - in the opposite direction. Elliott Wave Theory describes in detail the rules by which, up to 90%, you can determine which current wave the wave is developing at, and the Fibonacci coefficients help to find the final point of its completion. At the same time, in any section of the trend, the principle of fractality (self-similarity) is preserved. This means that any wave (in more detailed consideration) is also broken down into five components: three impulse waves and two corrective waves. The accuracy of the forecast, according to this theory, directly depends on the time period: the more it is, the more accurately the rules work. At the same time, thanks to fractality, the basic principle often manifests itself even on the shortest charts.