Elliot wave theory is a style of technical analysis that was popularized by Ralph Elliott. Initially created for the stock market, Elliot wave theory posits that assets follow a pattern of waves. That is, when you chart the advances and declines in an assets value, you are left with a formation that can be identified and separated into waves.
Because of its technical nature, Elliot wave theory can be used in any market that sees regular price action – like the foreign exchange market. Elliot claimed that all movements were made up of eight waves. In a currency pair experiencing a bullish trend, this would involve five advancing waves and then three corrective waves. In a pair experiencing a bearish trend, the order is reversed with five declining and three rising. The Elliot wave theory is said to work on all time scales, but applying it involves a lot of personal interpretation and dedicated practice.
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