Hello everyone,
This will be my first Forex related post on Steemit, so I hope you enjoy the information I will provide. Those of you who trade the Forex markets probably know about the Elliot Wave Theory and how it works. For those of you who are still beginners in that field I will give a few rules and basic information regarding the theory. At the bottom I will post a possible Live scenario based on that theory, which is currently in progress. Of course this is not a signal and any risks you take based on that scenario are your own.
What is Elliot Wave Theory:
Ralph Nelson Elliot developed his theory in the late 1920s. He believe that the stock markets move in a certain cycles, which can be predicted. After analyzing tons of data he developed the 5-wave theory, also known as Elliot Wave Theory. This theory implies that every cycle has 5 waves and after each cycle we have a period of consolidation. Later on traders discovered that the theory can me successfully implemented on the Forex markets.
The 5 Waves:
As mentioned every cycle is composed of 5 waves. The 1st, 3rd and 5th wave of the cycle are the main waves, also called impulses, and they form the main direction (or trend) in which the currency pair is moving. The 2nd and 4th waves are called "Correction waves" and they are in the opposite direction of the main movement (or cycle).
End of a cycle:
At the end of every cycle, the currency pair goes in to a consolidation period, forming a zig-zag or other range pattern. After the consolidation phase is finished, a new cycle begins.
Rules:
- Wave 3 can never be the shortest impulse wave.
- Wave 2 can never go beyond the start of Wave 1.
- Wave 4 can never cross in the same price area of Wave 1 (Wave 4 should not cross the top that was made by Wave 1).
Live Scenario:
So now that you know what Elliot Wave Theory is and how it works, I want to share with you a possible Live scenario on the GBP/USD pair. On the the picture below we can see that the pair has finished a 5-wave cycle, where all the 3 rules were obeyed. After the cycle we can see that the pair made a Zig-Zag range formation, thus preparing for a new cycle. Now all of this is on a Weekly time frame, so if we are correct in our analysis, the potential of the movement can be huge. The 1st wave of the cycle has just started, so let's see how everything develops. I wish everyone who decide to trade this pattern the very best of luck!
