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Announcements: In December and January, we will present a series of lessons on Elliot Waves Theory, typically twice a week.
Elliott Wave Theory (EWT) is a technical analysis technique that seeks to predict future market movements by identifying recurring patterns in price data. It was developed by Ralph Nelson Elliott in the 1930s.
Market Twists & Turns employs Elliott Wave Analysis together with Classical Technical Analysis and Cycle-based Price Projections and Turning Points providing a useful and unique multi-pronged technical analysis methodology to make informed trading decisions.
We’d like to take break in our “regularly scheduled programing” to say Thank You for your responsiveness to our sponsors’ and partner ads, it greatly helps us publish this newsletter for free.
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Elliott Wave Theory Lesson - Introduction
Ralph Nelson Elliott discovered the Elliott Wave Theory, or Elliott Wave Principle, in the 1930s. The Elliott Wave chart patterns capture crowd psychology and social trends.
Elliott proposed that market prices unfold in specific fractal patterns and isolated 13 patterns of movements that recur in the market price and are repetitive but not necessarily in time or size. Smaller patterns form larger patterns, etc… By identifying these patterns, traders can anticipate potential turning points and adjust their strategies accordingly.
The theory suggests that any major market move is cyclical in nature. The theory suggests that markets move in a series of waves driven by investor psychology. These waves can be categorized into two main types:
Motive Waves: These waves move in the direction of the overall trend and consist of five sub-waves. They are “actionary” waves.
Corrective Waves: These waves move against the overall trend and consist of three sub-waves. They are “reactionary” waves.
A correction of at least three waves occurs after five waves in the direction of the trend.
The figure below illustrates some of the concepts we discussed.
Consider the top wave consisting of an actionary motive wave 1-2-3-4-5 and a reactionary corrective wave A-B-C. In the motive wave, waves 1,3, and 5 are actionary, while waves 2 and 4 are reactionary.
The middle figure shows that waves 1, 3, and 5 comprise five smaller waves, and waves 2 and 4 comprise three smaller waves. This illustrates fractal structure.
The bottom wave further illustrates how the fractal structure extends to sub-waves. Of course, the same applies to larger waves of higher degrees.
However, it is important to note that Elliott Wave Theory is subjective and requires a deep understanding of its principles. It is also subject to interpretation, and different analysts may have different views on the current wave pattern, especially while the wave structure is evolving.
While it can be a valuable tool for technical analysis, combining it with other indicators and strategies is crucial to making informed trading decisions.
Many beginners ask, “Is the Elliot Wave Analysis” useful?
In my opinion, it is useful, varying from somewhat useful to very useful at times. It is extremely useful when combined with other methods that help narrow down the number of Elliot Wave alternatives.
But in addition to my opinion, I offer you an extensive, not necessarily exhaustive, summary of views you can find in the literature and on the internet.
Elliott Wave Theory is a valuable tool for technical analysis because it offers several potential benefits:
1. Identifying Market Trends:
Trend Direction: It helps identify the dominant trend in any timeframe, whether uptrend, downtrend or sideways movement.
Trend Maturity: It can gauge the maturity of a trend, indicating potential turning points.
2. Predicting Market Reversals:
Wave Patterns: By recognizing specific wave patterns, traders can anticipate potential reversals in market direction.
Timing Entries and Exits: This can help time entry and exit points for trades.
3. Setting Price Targets:
Fibonacci Ratios: The theory often uses Fibonacci ratios to project potential price targets for future movements.
4. Understanding Market Psychology:
Investor Sentiment: It provides insights into the collective sentiment driving market movements.
Crowd Behavior: By recognizing patterns, traders can understand how crowd psychology influences market trends.
5. Flexibility:
Multiple Timeframes: It can be applied to any market and timeframe, from short-term to long-term analysis.
However, it's important to remember that Elliott Wave Theory has limitations:
Subjectivity: Wave counting can be subjective, and different analysts may interpret patterns differently.
Complexity: Mastering the theory requires significant time and effort.
Hindsight Bias: Identifying patterns in hindsight is easier than in real-time.
External Factors: The theory does not account for external factors like economic news or geopolitical events.
Therefore, Elliott Wave Theory should be used in conjunction with other technical analysis tools and fundamental analysis to make informed trading decisions.
Read more lessons on investing on our Educational Resources Page.
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US Dollar Forecast – Cycle Analysis
Although DXY bounced the last two days, this bounce is likely within a bigger corrective pattern that is digesting strong October-November gains.
The correction may extend into Feb’25, before another attempt to reach still outstanding higher targets.
However, 28 trading days cycle, Hurst nominal 40D cycle, allows for 1-2 week bounce.
Upgrade to Pro to read extra details on the US Dollar plus all of our usual in-depth market summary, market cycle, Elliott Wave and volatility analysis.
Consider following me on X (former Twitter) in addition to the newsletter, as I often post valuable information there in real time between the newsletters.
The Put/Call Ratio is in the extreme greed territory.
It approaches the level last seen in July at July’s intermediate market top.
Can P/C Ratio get below July value, say to 0.6?
#greed#sentiment#StockMarket#SPX#NDX#DJI
#stockmarketcrash— BraVoCycles Newsletter (@BraVoCycles)
7:08 PM • Dec 9, 2024
To continue reading about Market Summary, US Markets, Elliott Wave and Technical analysis of US Markets, volatility, as well as commodities, bonds, forex, currencies or crypto, upgrade to Premium Pro. . .
Watch out for the next newsletter, we will analyze something interesting.
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