Essential Points to Remember in Applying the Elliott Wave Theory

Numerous Elliott wave number indicator theories were introduced concerning the meaning or origin of the Elliot patterns, involving even the social, natural harmony and behavior. However, disregard of their origin or meaning, these waves of patterns can be technically applied to the analysis of commodities, stocks or other markets. The pattern consists of five waves of patterns that display a trend of decline, followed by three reversing series of waves, which reverse again leading to five patterns of waves moving to the downside.

The name of the theory originates from the founder of the theory and his observations of the patterns in which appear like waves in the stock price charts. The observation is as such: a stock price would move forward, fall back, and then move forward again. On the other hand, if the trend is downwards, the stock price will move downwards, experience a small recovery, and then continue its decline downwards. Nevertheless, there are many forms of Elliott Wave patterns, as well as variations of them like the Neo Wave. Even within the Elliott Wave itself, you will be able to find more patterns within the pattern.

The Elliot wave concept, being particularly renowned now, is not a theory but more of a tale. This trend of movement is indeed convincing because it has an incredible ability to fit into any possible fraction of the market from the ancient up to the latest trends. This is probably due to the loosely defined rules of the method as well as a large number of waves being able to be postulated. Therefore, the Elliot theory owns the flexibility to allow astronomers to carry out explanations of the planet movements albeit the underlying concept of the Earth being the center of the universe was universally known to be wrong.

The pattern that works in the Elliott wave number indicator is one that complements at a high resistance level and strong Fibonacci support thus being one reliable indicator in the market. Should the wave pattern be accurate for the Fibonacci support, the possibilities of being correct is highly increased. Fibonacci has been known famously for his Summation series that leads to the discovery of arithmetic numbering by Old World during the 13th Century, replacing the old Arabic numbering. Surprisingly, his theory happened to be in vast relation to the Elliot notion.

The Elliott wave idea and the Fibonacci support, along with the resistance levels are used to draft out the pattern occurred in the financial markets. However, the indicator should not be absolutely depended considering there may be times where they get wrong. It should only be used as a guiding tool to evaluate the possible outcome, not reliable to make decisions for you. Having a rough idea of how the market may perform should prepare you emotionally and physically to nail the right verdict.

Finally, the major importance of understanding the Elliott Wave pattern in the markets you trade is to determine the direction of the dominant trend. We always want to trade with the main trend, and if possible, enter at the end of corrections to the main trend so that we can maximize our profit from the next move.