Did You Know,
The Elliott Wave Theory is a concept in technical analysis used to analyze financial market cycles and forecast future price movements. Here's a simple explanation:
Basic Concept: The theory proposes that market price movements follow repetitive patterns, known as waves, which are influenced by investor psychology and crowd behavior.
Five-Wave Structure: According to Elliott Wave Theory, market cycles consist of impulsive and corrective waves.
Impulsive waves: Move in the direction of the larger trend and are composed of five smaller waves labeled as 1, 2, 3, 4, and 5.
Corrective waves: Move against the larger trend and are composed of three smaller waves labeled as A, B, and C.
Three Rules for Impulsive Waves:
Wave 2 cannot retrace more than 100% of wave 1.
Wave 3 cannot be the shortest of waves 1, 3, and 5.
Wave 4 cannot overlap with the price territory of wave 1.
Wave Interpretation:
Waves 1, 3, and 5 represent the direction of the primary trend (upward or downward).
Waves 2 and 4 are corrective waves that provide opportunities for market participants to enter positions in the direction of the larger trend.
Corrective Waves:
Corrective waves (A, B, and C) retrace a portion of the preceding impulsive wave.
They provide a temporary pause or counter-trend movement within the larger trend.
° Traders and analysts use Elliott Wave Theory to identify potential entry and exit points in the market, determine price targets, and assess the overall market trend.
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