If you have been trading forex online for some time then probably you must have come across the word Elliot wave. This is a technical analysis method that utilizes Fibonacci ratios and chart patterns to establish the price of traded stocks in the future. This method does cover not only traded stocks but also other financial commodities such as foreign currencies, it is also expanded in the Neo Wave Theory.
There are varied definitions of the Elliot wave, but definitions usually bring in some technical terms that are distinctive in nature but do not generally contribute towards general knowledge of how trade stocks work but rather are used in the introductory part, they can be confusing though to newcomers.
The main idea behind the Elliot wave is that it is pattern based and that these patterns relate to each other in more or less predictable way, these patterns are normally designated as Fibonacci ratios. Analysts use data extracted from stocks and commodity charts to quickly and come up with a more detailed Elliot wave indicating that the stock within particular periods was bearish, bullish, or was on the right corrective trend. The old saying goes that trend is you’re your friends as a forex trader you can use these predictions to make future projections that may land you on greener pastures.
To get started the Elliot analysis has got a few rules and guidelines, so you don’t need a bulk of information to get you through, but just like any other skill proficiency is the key, then this is followed by proficiency, diligence, and practice of the skills learned. To get the most out of the Elliot wave theory then you have to take your time learn and then master the skill.
You can benefit from this prediction scale, but just like any other theory we have today it is prone to some limitation this include:
The Elliot wave theory some time does not show consistence in terms of indicators, for example, one indicator may be showing a buy signal while the other may be showing a sell signal this automatically leads to what is referred to as a technical indicators’ mix up. This mix up is likely to cause confusion in making trading decisions.
The Elliot wave trading technical analysis is likely to be a fool play in terms of accuracy. How does this come by? First, this technical analysis operates on the assumption that all the technical indicators give a possible entry and exit points and that their focusing accuracy is 100%. However this assumption is totally wrong, for instance when an entry or exit point on a wave is suggested, it does not automatically guarantee success in the stock exchange. This is true given that stocks can rise after an exit while equally, they can fall after you have just made an entry.
Based on different technical perspectives used to analyze data one technical analysis may contradict another in drawing up assumptions. This is mainly as a result of the different approaches in terms of technical methods employed by these analyses. This generally also contributes towards confusion in data analysis.