The Elliott Wave Principle Basics

Elliott Wave Theory works on the main principle that prices have a tendency of moving in waves of five towards the larger direction of the current trends and corrective waves of three in the smaller ones. When an up-trend is under way, one will notice that a three wave decline will follow on immediately after a clear five wave advancing move. Each of the Elliott wave patterns are labeled, the five wave advances are called the impulse waves and the three wave moves are called corrective waves.

Elliott waves appear on charts from all degrees of time, from those that are based each month right up to those that are one-minute charts. Waves of a lower degree when formed are also an integral part of a wave of a higher degree.

Elliott waves are often taken into consideration when it comes to spread betting Forex. In such cases, they should be thought of in three degrees – minor, where they are completely visible in a chart of 15 minutes; intermediate, where their presence is seen in hourly charts and finally the major waves that can be seen on daily charts. You will see that the Intermediate waves will have minor waves in them and the major waves will have intermediate ones forming them. If you want to determine a long term market direction, it would be best to make use of major impulse or corrective waves to help you ascertain the direction the long term market is taking.

Enter your spread bets at the beginning and exit them at the point of the intermediate impulse that forms an trend change that is part of the major waves. This again has to be used with the minor waves that are present within the intermediate waves. If you want to get into day trading and spread bet on an hourly basis, then you will need to use daily waves to determine the overall direction of the existing trend as well as 15-minute waves for timing when you most likely make your financial spread betting entries and exits.

The principle of Elliott wave works ideally in markets that have a massive public participation. The forex market is one of the largest in the world and thanks to its size, its enormity and the liquidity with diversity that it offers, there is often a clear display of Elliott wave trends. These patterns can be used by a trader to their advantage giving a high-reward/low-risk or high-probability entry point, depending on the Forex traders personal preferences.

In the Forex markets, the Elliott wave trading system is particularly useful because, major waves are often developed in close conjunction with interest rate cycles of the market. Potentially profitable Elliott wave trading system setups take place on a regular basis.

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