The Elliott wave is a theory that specifically pertains to the technical analysis method of predicting the movement of stock prices. It can be applied for judging the movement for the prices of stock and commodity markets in the scenario of the stock markets around the world. The Elliott wave theory was developed by an accountant known as Ralph Nelson Elliott. He believed that the prices of the stocks and commodities usually move in a pattern that is affected by the investor’s psychology of buying and selling. Using the Elliott wave theory, investors can purchase and sell the stocks and commodities to gain profits from the share market.
Elliott wanted to help the investors earn from the stock market. The charts were built on the Fibonacci structure and these investment charts are based on the waves known as impulse waves. The Elliott wave principle shows that the prices will first move in waves of 5 trends that will take the markets or the stock and the commodity prices. After this the market will come down and there will; be a correction in the market that will last for three waves of patterns. Accordingly, it notes that by studying the previous movements, the future predictions can be made accurately.
The waves in the Elliott wave analysis
Accordingly the Elliott wave analysis was broken down in 9 different ones. These are known as Grand Supercycle, Super cycle, Cycle, Primary, Intermediate, Minor, Minute, Minutte and Sub Minutte. The Grand Supercycle is the biggest waves according to the Elliott wave analysis and these are also termed as the long term waves. Speculators specifically like to trade through short term waves without looking at the long term prospect of the stock or the commodity price.
The most difficult part of the Elliott wave analysis is to understand the wave formation process and identifying the waves. Essentially there are two types of waves that are there, that are known as the “impulse waves” and the “corrective waves. The impulse waves consist of the first 5 waves and will lead the stock market to a greater high than before. As soon as the 5th wave is reached, the corrective will begin. The moment the correction sets in, it’s termed as the “corrective wave” cycle. But these corrective waves will bring about only a partial correction.
Used around the world
For those that are chartists and use the technical analysis for forecasting the prices and the movements of the stock in the share market, the Elliott wave analysis is among the key methods that they must master. Many market analysts also feel that it’ provides a particular framework for the investors to enter the market and exit the market for the profits or the losses. It’s used by many investors for trading on the stock markets, futures and derivatives market, however Criticism of this method are many.
