The concept of "wave" perception of the financial assets market, the foundations of which were developed by researcher Elliot, is well-known among Forex traders. Many know its key points, but very few of the traders actually practice it.
Apparently, this situation is due to the fact that not all Forex traders understand the possibilities of its practical application, not all Forex traders are ready to use it to analyze the market and make informed trading decisions in currency trading.
For Forex traders, it is important to understand the following aspects of the Elliott Wave Concept:
• main idea;
• key principles of market analysis;
• key principles for predicting market trends.
Profitable “waves” - at your complete and instant disposal
Wave concept: key points
The concept of Elliott's market waves was developed to apply it to analyze the situation on the financial asset market, identify trends in market dynamics and predict its future movements.
According to Elliot himself, it is the wave approach to the perception of the financial market that creates the most favorable grounds for competent and reasonable identification of trends in the behavior of the “market crowd”. The concept of market waves will make it possible to understand what the current market sentiment is and what course dynamics should be expected in the analyzed perspective.
The original and very important position of the concept of market waves was Elliot's statement that market behavior is similar to the movement of sea waves. In other words, the dynamics of the Forex currency rate is similar to the successive tides of the sea.
In the direction of the current trend, Forex market, as a rule, passes five waves - five wave movements. In the direction opposite to the current trend, the market usually passes three waves - three wave movements.
Simplicity at the edge of art: action and reaction in the market
Wave movements of the market are carried out according to the well-known principle of mutual actualization of action and reaction. As the practice of Forex analysis shows, the same principle can be successfully applied to the description of typical crowd behavior in the market.
For example, people, for the most part, tend to purchase a product in a situation where its price is falling. The massive desire to buy stimulates the growth of demand for this product. The growing demand for any product is accompanied by a shortage or a gradual decrease in the supply of the corresponding product, which, in turn, causes an increase in its price.
Thus, in order to make a profit from a currency trading on Forex, a trader must clearly capture those moments when a market action - price movement - causes opposition - price movement in the opposite direction.
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