Want to improve your knowledge on TA indicators? Get familiar with the Elliot Wave theory 👇
The Elliott Wave principle was created in the '30s by Ralph Nelson Elliott – an American accountant and author. However, the theory only rose in popularity in the '70s, thanks to the efforts of Robert R. Prechter and A. J. Frost.
[...] the Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave.Typically, the basic Elliott Wave pattern is identifiable by an eight-wave pattern, which contains fivebullish marketNote that, in the first example, we have five Motive Waves: three in the upward move , plus two in the downward move . Simply put, any move that is in accordance with the major trend may be considered a Motive Wave.
Among waves 1, 3, and 5, wave 3 can't be the shortest and is often the longest one. Also, Wave 3 always moves past the end of Wave 1.Unlike Motive Waves, Corrective Waves are typically made of a three-wave structure. They are often formed by a smaller Corrective Wave occurring between two larger Motive Waves. The three waves are often named A, B, and C.
According to Prechter, the most important rule to keep in mind regarding Corrective Waves is that they are never made of five waves.There is an ongoing debate regarding the efficiency of the Elliott waves. Some say that the success rate of the Elliott Wave principle is heavily dependent on the traders' ability to precisely divide the market movements into trends and corrections.
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