Elliot Wave principle is a theory about the mass psychology applied in financial markets. The principle EW indicates that mass psychology swings from pessimism to optimism in a predictable pattern and circular wave and that this pattern can be seen in price movements in financial markets.
EW analysis is a form of technical analysis that attempts to forecast financial markets by identifying a beginning, middle and end of a sequence predictable wave. The theory was developed by Ralph Nelson Elliot, an accountant in the 1930s.
The principle EW provides that human behavior collective shifts between optimism and pessimism in a predictable natural sequence and that this sequence can be seen in the opening of market prices. Due to predictable nature of wave sequence, where it is precisely the principle one can forecast behavior from the natural sequence of action and reaction representing waves. This ability to predict the actions of the market allows to usefully to buy and sell financial products.
According to Elliot, all natural processes repeat ourselves constantly recur waves in a clear pattern and number. Model, the nature of law: the secrets of the universe, claiming that the market values alternate between five waves and three waves at all levels within a trend. The dominant waves 1, 3 and 5, the "incentive" waves and wave it subdivides each motive into five waves. Waves 2 and 4 are known as "corrective" waves and divide into three waves. Waves incentive can be either pessimistic or optimistic depending on whether the market is bullish or bearish.
Elliott wave believed each had a "personality." The "personality" is an expression of collective psychology at the moment. To apply the principal wave effectively an investor must understand how and why the wave was developed. One must understand the original catalyst.
ElliotWave and Fibonacci sequences
Elliot later discovered that "numbers" were actually identical numbers represented by the Fibonacci series. Fibonacci was an Italian mathematician who introduced the medieval mathematical chrimatomesites from Arab and Hindu world to the West. One idea was a numeric sequence is known as the Fibonacci sequence. Fibonacci Sequence based on a sequence of numbers showing n 1, 1, 2, 3, 5, 8, or member is always preceded by a (n-1) + (n-2).
What makes the connection between the Elliot Wave numbers and Fibonacci sequence numbers Interestingly two theories address numbers allegedly occur naturally. The Fibonacci sequence and ratios derived from it, can be seen over and over again in the natural world from flower petals with rings tree. Some argue that it is a numeric expression of best natural growth. Undertone fortified for distillation of Elliot ideas and there seems to be some empirical basis both.
Rules of Elliot
In the count waves Elliot had three rules that could ever be broken for analysis to work: article 1: wave 2 cannot go below the bottom of wave 1. Rule 2: of the three impulse waves-1,3 and (5)-Wave 3 can never be at the earliest opportunity. Rule 3: Wave 4 cannot be terminated under the wave 1, except in the rare event a diagonal triangle. It was critical to understand what is wave or it won't work analysis.
The Rediscovery of Elliot
Robert Prechter Discover works of Elliott while working as a technician at Merrill Lynch. He used his Elliot to create himself as one of the dominant forecasters 1980s bull market. He has written more than 25 books on the theory of the first publication of a magazine about this 1979.
Wave analysis are widely accepted among market technicians and are widely accepted as a component of their trade. Elliott Wave theory is also among the methods listed on the Chartered market technician examination.
0 comments:
Post a Comment