The understanding of the market movement`s structure is the basis of successful forecasting of future price movements, the main objectives of the movement and possible points of reversal.

In 1938, after studying stock charts for previous twelve years, a talented financier Ralph Nelson Elliott published a book "The Wave".

The book is based on the following key statements:

- Cycles of mass human behavior that is reflected in the

movements of a stock’s price.

- The stock market is a bright representative of human emotions.

- Pulse wave form and corrective shapes.

- Wave structures for different linked timeframes.

- Understanding of the wave structure of the market makes it possible to accurately determine the greatest goals of the movement and to predict further price movement

 теория Эллиотта


Advantages of the wave theory

1. It provides an algorithm for movement of the price trend and Flat

- Pulse (trend) is composed of 5 waves (denoted by numbers 1, 2, 3, 4, 5) 
- correction (motion in the flat) - of 3 waves (denoted by the letters A, B, C) 

Hence, you see 
- 5-wave momentum - is working on a trend 
- 3-wave correction - looks rush to open transactions against the current motion

2. It gives goals of the movement impulse and correction

Once the wave structure is a specific set of successive waves, so it is possible to identify patterns of mutual proportions of these waves. For this purpose is used the Fibonacci levels. 

For example,

- the main objectives of the wave motion "3" will be 138.2%, 161.8%, 200%, 261.8%, 361.8% 
- the goals of the wave motion "2" - 23.6% , 50%, 61.8%, 76.4% 

62% level, it usually goes to 200%, then to 261.8% and 361.8%. 

Now you know where and why the deal is closed with the trend and profit.

3. Wave structure (its sub-waves) can be separated from the correction pulse

Recall pulse consists of the 5 sub-waves, the correction of 3.

4. Wave theory indicates reversals, which are the beginning of a strong movement in the opposite direction

For example, 
- truncated wave "5" and "C» Masterforex-V



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If you are familiar with these concepts -  move to the next class:  forex fundamental analysis