Let
us know a little Elliot Wave theory. Elliot Wave is a theory about how the
price movements (in this case the price in pairs), moves according to a certain
pattern. Actually, what I was trying expressed in Elliott Wave similar to
Fibonacci. That is why the Elliot Wave theory is often combined with Fibonacci.
About Fibonacci, we've discussed in previous articles.
Well,
now it's our turn to know Elliot Wave. In essence, the Elliot Wave to
understand the properties and behavior of price movements as the Fibonacci,
combined with a sense of support-resistant. Eliot Wave forms on the basis of
mass psychology of traders. As we know, the market price moves in accordance
with market mechanisms: the power supply and demand. If the supply is more
powerful then the price will go down. In contrast, if the demand is stronger,
the price will rise. Strength Supply-Demand in effect on a pair, reflected in the
strength Sell (Supply) and Buy (Demand).
The
basic pattern of Elliot Wave are as follows:
The
above pattern is often referred to as pattern 5-3. Explanation background of
the formation of the waves more or less as follows:
Wave
1 is formed by the action Buy from most traders because a certain spark and
make the price to rise
Wave
2 is formed when most traders assume that the price is quite high and they do a
lot of take profit, so prices declined slightly, although not back to the
initial price of wave 1. Wave 3 is formed when most traders assume that the
price is already low enough so that action Buy can be re-done. This is usually
the longest wave, because normally, see the movement of the past, more and more
traders are interested to do actions Buy with this pair.
Wave
4 is formed when the price is now very high, so many that do take profit so
price re-corrected
Wave
5 re-formed after the price was considered low enough to re-do actions Buy 5
wave pattern in the Elliot Wave is usually then corrected by a 3 wave counter
trends,
so
that the pattern seen is as follows:
Theoretically,
Elliot Wave patterns can occur also in the bear market, with the following
pattern:
One
more thing we need to understand about Elliot Wave is: a surge in waves. That
is, in a (major) wave, occurs (minor) wave or sub-waves.
The
picture is as follows:
That
is why, you must carefully observe the chart and determine the time frame that
is appropriate to recognize the ongoing market conditions. Ok, it is the basic
patterns Elliot Wave. In real terms, perhaps it is rather difficult to
recognize such patterns. You can do a closer observation, we may need to toggle
between zoom and time frames to find patterns Elliot Wave.
Perhaps
you are wondering, "then, the trading application in hell, then?" By
recognizing Elliot Wave, we are at least able to follow the movement of the
waves and understand market psychology and can take the right position.