This article will contain information about thedefinition of wave analysis. The history of appearance of this phenomenon will be affected. The very essence and application will be revealed. Also, let's talk about the Elliott method and the Forex market.
How did the wave analysis method
Ralph Nelson Elliott is the person who introduceda significant contribution to the description of the work of the stock market. Being a man with a mathematical mindset, having a rich experience of a successful manager, Elliott was able to summarize information and draw conclusions from this, making practical decisions for the future.
Observing the history at his disposalchanges in quotations, he noticed certain patterns in its development. They were subsequently collected together, resulting in the emergence of the theory of Wave Analysis. Today, wave analysis has firmly taken its place among various methods of analysis and forecasting the development of events.
The essence of the Wave Theory
It is based on the observation that developmentThe movement of prices can be divided into certain stages, which successively replace each other. According to the Elliott Wave Theory, there are pulsed and corrective waves. One full wave has eight subwaves, or waves of a smaller scale. First, a moving one develops, which has three progressive subwaves, separated by two corrective ones, then a correction phase begins, which consists of three sub-waves: two progressive ones and one corrective one. Thus, the circle of the full cycle of the development of the wave closes.
Fibonacci Numbers and Elliott Wave Theory
Те, кто применяет волновой анализ в торговле на financial markets, perfectly aware that the basis for predicting the movement of prices Elliott laid the numbers from the mathematical sequence, which was discovered by Leonardo Pisansky, who received the nickname Fibonacci. In this sequence, each successive number is formed by adding the two previous ones. It is interesting that various interpretations of this series of numbers are everywhere observed in the world around us. Obviously, that's why Elliot used them in his theory.
Why does it work in financial markets?
Wave analysis of the market, be it a stock, raw materialor the foreign exchange market, works on the same principle. Based on the existing picture, forecasts are made for possible scenarios for the development of events in which Fibonacci numbers are used literally, but more often in percentage terms.
Thus, wave analysis helpspredict the depth of correction relative to the magnitude of the movement of the price. If the absolute value of the progressive wave is taken as one, then the main correction zones are marked relative to its length, roughly speaking, 62%, 50%, 38%. Also there are additional zones in 24% and 76%.
When the correction is over, then the length of the next progressive wave can be postponed from its end point, also using the percentage expression of Fibonacci numbers: 162%, 262%, 424% ...
Although price movement is not determinedmathematical formulas, the ubiquitous presence of Fibonacci numbers in nature prompted them to apply them to psychological models of behavior of market participants. Therefore, wave analysis and Fibonacci numbers apply to the numerical development of the movement of quotations, and to a temporary expectation of the achievement of certain indicators by the price, and in other spheres.
The method of Elliott and "Forex"
Today, the popularity of tradein the foreign exchange market "Forex", so the wave analysis of currency pairs has its followers and even fans. It has its expression in a number of indicators, which are built into the trading terminal MT4, the most common and popular among non-professional traders.
For example, the above percentage valuesare automatically constructed by the indicator of Fibonacci lines, and time expectations - on the time zone indicator. Wave analysis in combination with Fibonacci numbers is used in the construction of arcs, fans and extensions.
However, this method has opponents.The main factor that falls under the critics' fire is the subjectivity of the interpretation of the available data. However, it can be said with certainty that this is its advantage. As you know, there is no grail in financial markets precisely because psychology is more present here than mathematics. This is an effective method, however it brings a fairly accurate result only after a long improvement.
The main advantage that the method hasMarket Analysis, called Wave Analysis - a forecast that can, with a high degree of probability, indicate price targets for which you should be attentive to price behavior in order to exit or enter a trade.
When a new financial market appearstool for trade, it is easier to apply the available methods of analysis and forecasting to it than many years later. This is due to the fact that market makers do not yet have much experience in “covering up the traces” of their activities. To read their intentions helps wave analysis. The dollar-ruble is a relatively young currency pair, because the method proposed by Elliott is quite applicable.
