In order to understand the theory of Elliott waves more deeply, traders in the Forex currency market should be aware of the general rules of this theory and study its concepts. This knowledge will help to eliminate misunderstanding and complications concerning some important features of the theory, which every trader should know …
The most important rule is that in the Forex currency market the second wave can not roll off the first one by more than 100 percent. In this rule, there are no exceptions, and there will be no.
Corrective waves usually consist of three waves of small size or can form a triangle. These triangles can be: increasing, decreasing and symmetric.
The fourth wave will never overlap the second wave, until the full cycle of five waves is part of the triangle.
In the vast majority of cases, the third wave is always the longest and is never short. In cases where the direction of the third wave coincides with the main trend, its length becomes 1.618 times greater than the length of the very first of the waves.
Recognize the corrective wave is very difficult, almost impossible in the Forex currency market.
All “incorrect” corrections are considered normal, since their probability is the same as for “correct” corrections. Therefore, there is no need to panic and fear “wrong” corrections.
What are Elliott Waves?
Classical graphical analysis and wave theory may well be used together, since they do not contradict each other, and in some cases, which most, even combine very well.
In those markets where there is no upper long-term slope (this refers to the stock market and bonds), you can always apply the Elliott theory. It has proven itself in the Forex currency market.
The followers of this theory of waves very often use the following coefficients and Fibonacci corrections: from 0.236 to 4.236. Other coefficients and values in the foreign exchange market are used much less often.
Experts say that Elliott waves are a wonderful method for analyzing the currency market, but the problem is that these waves can not be visually recognized. In order to determine these waves, a great deal of experience is needed.
Currently, there are programs that are able to find and determine automatically the phase of the wave, but they very often make mistakes. In the history of Forex there were examples of traders who successfully used this theory …