Elliott wave theory for trading profits

Elliott wave theory – beat the market with better predictions.

In the current economic environment, it can be hard to hit on an effective investment strategy. The wave principal offers a way to get ahead by teaching you to predict market movements.

What is Elliott wave theory?

This trading strategy says that markets tend to move in a specific, repeated pattern. The first piece of this pattern is the Impulse wave. In a bull market, the Impulse wave moves upwards as prices rise; this is reversed in a bear market. The Impulse wave is inevitably followed by a Corrective wave, where prices settle in the opposite direction.

The Impulse wave can be divided into five segments. In a bull market, the segments are:

*Wave 1 – prices rise as a small number of traders lead a rally after a bear market.

*Wave 2 – a sell-off leads to falling prices, but not all the gains made in Wave 1 are lost.

*Wave 3 – there is a second rally which typically lasts longer than Wave 1.

*Wave 4 – a second correction takes place as many traders seek to cash out on their gains.

*Wave 5 – there is another rally, but it’s usually shorter than Wave 3.

Corrective waves can take several different forms. The most common of these has three segments:

*Wave A – there is a correction in the market

*Wave B – prices rise but do not regain all the ground lost during Wave A

*Wave C – there is another downward correction, with losses equal to or greater than the losses seen in Wave A.

There are a few important things to keep in mind. The first is that each segment contains smaller waves that all conform to the theory. For example, Wave 2 of a bull-market Impulse wave follows the common Corrective pattern, with its own Waves A, B and C. The second thing to remember is that this trading method doesn’t predict specific time scales – only that the pattern will play out eventually, in its own time.

Profiting from this trading strategy.

If you’re ready to get started, you have a few options. There are many forecasts available that make recommendations based on Elliott wave theory. Alternatively, if you have time to do your own research and analysis, there are a number of books or online resources to get you started. Done correctly, either method can turn this theory into a valuable part of your trading arsenal.

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