Elliott Waves are a form of technical analysis used to predict future market movements by identifying and analyzing repeating patterns in the price action of a security. The primary focus of Elliott Wave theory is on chart patterns that indicate whether or not an asset’s trend will continue or reverse.
The theory was developed by Ralph Nelson Elliott, an accountant and financial analyst who published his findings in the book “The Wave Principle” in 1938. According to Elliot, prices move in waves, with each wave consisting of two parts: impulse waves (also known as motive waves) which move in the direction of the larger trend; and corrective waves (or reactionary waves) which counterbalance these moves against them. Each wave within a given cycle is composed of smaller sub-waves that can be identified using Fibonacci numbers as well as other methods.
The goal when applying Elliott Waves is to be able to identify where prices are within their wave cycle so that traders can better anticipate possible turning points before they occur. To do this successfully requires careful observation and interpretation based on past price action data along with other indicators such as volume and momentum oscillators like RSI or MACD.
By correctly forecasting trends through Elliot Wave analysis traders may be able to gain insight into potential reversals before they happen helping them enter profitable trades ahead of time while avoiding losses due to unexpected market movements caused by economic news events or policy changes from central banks around the world.
