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Elliott wave analysis is an advanced technical analysis tool that spans stock market patterns and general social mood waves. It's more of an art rather than a science. Elliott Wave Analysis is based on repetitive wave patterns and the Fibonacci number sequence. In fact, the point of using Elliott wave analysis is to determine where the market is in a wave count, so that you are able to see where the trend is most likely to turn. At its core, Elliott wave analysis is all about "fives and threes. Taken in its simplest form, Elliott Wave analysis is a robust forecasting tool.

Wave is a movement in the market, either up or down. Waves can, therefore, be analyzed in time periods ranging from a matter of minutes to many centuries. The size of the wave depends upon the period of time that is being analyzed.

Elliott discerned various types of wave patterns and labeled them. Waves 1, 3, and 5 move in the direction of the market's main trend. Waves 2 and 4 move against the market's main trend. Waves a and c move against the market's main trend. Wave b moves in the direction of the market's main trend.

Wave counts put together must obey most of the rules and any wrong count will quickly be taken out. Nevertheless, as the market pattern is relatively simplistic,there are several rules for valid counts:

Wave 2 should not break below the beginning of Wave 1;

Wave 3 should not be the shortest wave among Wave 1, 3 and 5;

Wave 4 should not overlap with Wave 1, except for wave 1, 5, a or c of a higher degree.

Even if you are not interested in Elliott Wave analysis as a market timing trading technique for short term profits, an understanding of Elliott Wave still has value.

Markets never go in one direction forever.

One's ability is constantly challenged by the market and is always evolving. Elliott, who observed more than a half-century ago that stock market movements unfold in a series of rhythmic patterns which are based on a natural progression of shifts in mass investor psychology. As market participants vacillate between greed and fear, price patterns develop. Elliott Wave Theory interprets market actions in terms of recurrent price structures. Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart. All we have to do is to identify which wave form is going to unfold in order to predict future market actions.

The markets tend to move in a pattern based upon Fibonacci numbers and ratios. Elliott Wave Analysis is based on repetitive wave patterns and the Fibonacci number sequence. The Fibonacci number series is the basis for calculating percentages which are best for locating areas of probable reversals.

Elliott wave analysis is an advanced technical analysis tool that spans stock market patterns and general social mood waves. In fact, the point of using Elliott wave analysis is to determine where the market is in a wave count, so that you are able to see where the trend is most likely to turn. Since Elliott Wave analysis is based upon price patterns, a pattern identified as having been completed is either over or it isn't. "One strong point of Elliott wave analysis is that it does let you know when you're wrong." Taken in its simplest form, Elliott Wave analysis is a robust forecasting tool.


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