How to use Elliott Wave Principle in forex trading

R.N. Elliott, a professional business accountant, made a discovery in the 1930’s of repeating patterns while observing the financial market movement. His theory was backed by the precise predictions at the stock market. He emphasized that the apparently random looking phenomenon generally follow a pattern if looked hard into. This principle named as “the Elliott wave principle” finds its application in many areas like media based, political or cultural phenomenon.

Main informations :
Those days in school of 1920-30s, there was professional and mad genius known as Ralph Nelson Elliott who was an Accountant.
75 years of stock data closely worth by analyzing, stock market discovered by Elliott, actually to behave in a chaotic manner.
66 years old when he hit, finally gathered with enough evidence by sharing his discovery to the world.
The wave principle which he published in book contains all details.
According Elliott market treaded with repetitive cycles, which pointed emotions of investors which caused outside influences or predominant psychology of time at masses.
Up and down swings in price which caused by collective psychology showed up same repetitive patterns explained by Elliott.
Elliott called these up and down swings “waves”.
Elliott believes that you correctly identify repeating patterns in prices, it is easy for you to predict the next step.
Elliott appealing waves to traders. Which given them identify points precise price is most to reverse which makes. Elliot came with system which enables trade hold bottom and top.
Is Elliott found order by amidst of chaos in prices?
Of course, Elliott need to claim observation came like mad geniuses with original name as The Elliott Wave Theory.

Before we delve in Elliott waves, need you understand first what fractals are:
Basically, fractals are structures which is possible to split in parts. Self-similarity is the name called by mathematicians.
No need go far as you can find examples of fractals all over nature!
Sea, snow flake and cloud are fractal. Lightning bolt is also a fractal.
Why fractals important?
In Elliott waves, fractals is important quality. Snow and sea shells much like, Elliott waves smaller subdivided in further.

The Elliott Wave Principle

Elliott presented that a trading market changes in what he named 5-3 wave patterns.
Trader can use shares, currencies, gold, oil, bonds in trading.
Second wave
This is just suitable for people who went through the first wave about the stocks, their overvalued and the take profits too. This is brought about by the drop in the costs. On the other hand, the shares will not drop to the previous lows, due to the considered bargain cost.
The third wave
This is typically the longest and the sturdiest wave of all. This part has been catching the attention of the people. More people become conscious about the section and they want to have it. This causes the price to rise. This wave typically goes on to its highest point that was made first wave.
The fourth wave
People usually take earnings, because the shares are measured as costly. The wave is quite weak, because there are more people who are still strong on the stocks and they are waiting for to buy on dips.
The fifth wave
This is the time where most of the people buy their shares and it causes panic, is it quite sounding familiar to you?

Once the principle was published in the 1980’s, it spread like fire amongst the public and private investors. There were three kinds of reactions though; some showed total disbelief in the principle, some were happy to have some power of turning the tables finally, and lastly the ones who exhibited an urgency to actually learn it and apply it.
Similar to the fact that repetitive patterns are found in small or large natural physiological, botanical, geographical systems and structures, and even in the human created architectures, patterns are also found in the financial markets. The development of the pattern in the market is steered by the natural changes in the general order of progress just like in the natural systems e.g. in formation of hands inside the womb, starts from a round structure, and only five points grow outwards forming the fingers.
The Elliott wave analysis starts by realizing the patterns the prices in the market may be following. Deep down every pattern is either an impulse or a corrective wave. The impulse waves are the market moving waves that comprise of 5 smaller waves all moving in a similar direction set by the trend of the subsequent larger wave. Corrective waves on the other hand comprise of three smaller waves and move against the trend of subsequent larger wave. They serve to achieve slight correction or retracement of any preceding impulse waves advancements. So in total the Elliott wave comprises of 8 smaller waves forming 2 phases. 5 of these small waves are the impulse waves and 3 are the corrective ones.

The Elliott wave basically serves to depict the behavior of a market. Elliott explained the few particular variations the waves usually undergo while making certain themed patterns. He found out that not only the requirements behind the rendered patterns could be realized but also the tendency of the pattern could be identified.