Welcome to Lesson 2 of the Forex 303 course, where we delve into the captivating realm of Elliott Wave Theory—an advanced technique that invites you to explore the potential nuances in predicting market movements. In this module, we will dive into the depths of price patterns influenced by investor psychology, providing you with valuable tools to enhance your trading strategy.
Advanced Technical Analysis 2
- Elliott Wave Theory
Elliott Wave Theory
Impulse waves are the directional movements of a market in the direction of the prevailing trend. They consist of five sub-waves labeled as 1, 2, 3, 4, and 5. Waves 1, 3, and 5 move in the direction of the main trend and are considered “impulse” waves. These waves are usually characterized by strong price movements and are associated with the expansion phase of a trend.
Impulse Waves:
Impulse waves are the directional movements of a market in the direction of the prevailing trend. They consist of five sub-waves labeled as 1, 2, 3, 4, and 5. Waves 1, 3, and 5 move in the direction of the main trend and are considered “impulse” waves. These waves are usually characterized by strong price movements and are associated with the expansion phase of a trend.
Corrective Waves:
Corrective waves are countertrend movements that temporarily retrace the progress of the previous impulse waves. They consist of three sub-waves labeled as A, B, and C. Waves A and C move in the opposite direction of the main trend, while wave B retraces some of the movement of wave A. Corrective waves are associated with consolidation or retracement phases in the market.
Elliott Wave cycle
The complete sequence of eight waves (5 impulse waves and 3 corrective waves) is often referred to as an Elliott Wave cycle. Additionally, Elliott proposed that this pattern repeats itself across different timeframes, creating larger and smaller waves within a broader wave structure.
Elliott Wave analysts use chart patterns and Fibonacci ratios to identify and confirm the presence of these waves. However, it’s important to note that while Elliott Wave Theory can provide insights into potential price movements, it is also complex and subjective. Different analysts might interpret the same market differently, leading to variations in wave counts and patterns.
What’s Next?
Congratulations on completing Lesson 2 of 5! But don’t stop now—there’s so much more to learn.
