The main idea of the theory is that each trend is divided into basic components, called waves. These periods are cyclical, so the poet repeats from time to time. Some waves move in the same direction as the main trend. Other parts lead to a correction.
The author of the Elliott Wave claims that the overall change in the market depends on this pattern. Analysis within the framework of this theory is carried out on the basis of impulses. The whole set of waves is divided into 5 groups:
- The expression of the emotional mood of the trader;
- Correction (traders make a decision about entering the market);
- The decision to enter into a deal to buy;
- Exit the transaction, profit taking;
- Wave peak, closing buy orders.
Correctional waves are called opposing. The main periods are valid.
Wave analysis seems to be very difficult for many traders. Months and even years can go on training. But experts point out that efforts are worthy of results. Deep study of waves requires serious mental effort.
This type of analysis allows you to see the various options for market developments. This method is suitable for particularly accurate prediction.