R. N. Elliott believed markets had well-defined waves that could be used to predict market direction. In 1939, Elliott detailed the Elliott Wave Theory, which states that stock prices are governed by cycles founded upon the Fibonacci series (1-2-3-5-8-13-21…).
According to the Elliott Wave Theory, stock prices tend to move in a predetermined number of waves consistent with the Fibonacci series. Specifically, Elliott believed the market moved in five distinct waves on the upside and three distinct on the downside. The basic shape of the wave is shown below.

Waves one, three and five represent the 'impulse', or minor up-waves in a major bull move. Waves two and four represent the 'corrective,' or minor down-waves in the major bull move. The waves lettered A and C represents the minor down-waves in a major bear move, while B represents the one up-wave in a minor bear wave.
Elliott proposed that the waves existed at many levels, meaning there could be waves within waves. To clarify, this means that the chart above not only represents the primary wave pattern, but it could also represent what occurs just between points 2 and 4. The diagram below shows how primary waves could be broken down into smaller waves.

Elliott Wave theory ascribes names to the waves in order of descending size:

1. Grand Supercycle
2. Supercycle
3. Cycle
4. Primary
5. Intermediate
6. Minor
7. Minute
8. Minuette
9. Sub-Minuette

The major waves determine the major trend of the market, and minor waves determine minor trends. This is similar to the way Dow Theory postulates primary and secondary trends. Elliott provided numerous variations on the main wave, and placed particular importance on the golden mean, 0.618, as a significant percentage for retracement.
Trading using Elliott Wave patterns is quite simple. The trader identifies the main wave or Supercycle, enters long, and then sells or shorts, as the reversal is determined. This continues in progressively shorter cycles until the cycle completes and the main wave resurfaces. The caution to this is that much of the wave identification is taken in hindsight and disagreements arise between Elliott Wave technicians as to which cycle the market is in.



Source: StockCharts.com

Very interesting, also plays into my idea of how the use of calculus could assist a FOREX trader. It's no wonder many firms are hiring Mathematicians and Physicists as quantitative analysts for this type of field.

Comparisons can be drawn to hedge funds with quantitative analysis like this. The Medallion fund was founded by a Ph.D Physicist who thought that his mathematical backing and hiring of highly skilled mathematicians and physicists would help them beat the market - he was right. They consistently put out 40+% returns annually, even in this market climate. I'm sure the same could be applied to FOREX

I've never noticed anything like that before in the markets, but if you look at long term charts you can kind of see this pattern appearing. Not that its a conspiracy, but maybe its just a natural trend in how things work out. It's a wonder more mathematicians don't get involved in trading, one would think after a few business courses they'd be pros at this.

Hi forum:

Do you know what is the difference between Fibonacci series and Wave Elliot, I main there is one better than the other, or It uses for different things.

Thanks

Diane Samuelson
Economist
Cambridge University

The Elliott wave principle is a form of technical analysis that attempts to forecast trends in the financial markets and other collective activities. It is named after Ralph Nelson Elliott (1871–1948), an accountant who developed the concept in the 1930s: he proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves. Elliott published his views of market behavior in the book The Wave Principle (1938), in a series of articles in Financial World magazine in 1939, and most fully in his final major work, Nature’s Laws – The Secret of the Universe (1946).[1] Elliott argued that because humans are themselves rhythmical, their activities and decisions could be predicted in rhythms, too. Critics argue that the Elliott wave principle is pseudo scientific and contradicts the efficient market hypothesis.
Fibonacci numbers provide the mathematical foundation for the Elliott Wave Theory. Briefly, the Fibonacci number sequence is made by simply starting at 1and adding the previous number to arrive at the new number (i.e., 0+1=1, 1+1=2, 2+1=3, 3+2=5, 5+3=8, 8+5=13, etc.). Each of the cycles that Elliott defined are comprised of a total wave count that falls within the Fibonacci number sequence. For example, the preceding chart shows two Primary waves (an impulse wave and a corrective wave), eight intermediate waves (the 5-3 sequence shown in the second and third charts), and 34 minute waves (as labeled). The numbers 2, 8, and 34 fall within the Fibonacci numbering sequence.
Elliott Wave practitioners use their determination of the wave count in combination with the Fibonacci numbers to predict the time span and magnitude of future market moves ranging from minutes and hours to years and decades.
There is general agreement among Elliott Wave practitioners that the most recent Grand Super cycle began in 1932 and that the final fifth wave of this cycle began at the market bottom in 1982. However, there has been much disparity since 1982. Many heralded the arrival of the October 1987 crash as the end of the cycle. The strong recovery that has since followed has caused them to reevaluate their wave counts. Herein, lies the weakness of the Elliott Wave Theory--its predictive value is dependent on an accurate wave count. Determining where one wave starts and another wave ends can be extremely subjective.

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That's right finvik.You have explained the theory in quite details.

Ralph Nelson Elliott developed Elliott wave theory in the late 1920s while discovering stock market. Elliot always believed markets precise waves can be use to predict market direction.

According to the Elliott wave theory stock prices governed by cycles originated upon the Fibonacci series (1-2-3-5-8-13-21 and so on). This theory to some extent is based on Dow Theory in which stock prices moves in wave. However, Only Elliot was able to break down this theory and examine it in much detail.

Elliott believed that the market move in five distinct waves on the upside and three distinct wave on the downside.

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Forex Fundamentals
AvafxTrader's Blog

Thanx if you liked it & understood properly.

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There's a joke about Elliot wave chartists:
When you put 5 chartists in the same room and show them the chart, no two chartists will draw the same picture.

It seems much too ambiguous for me. Simple charts, channels, double tops - easy to identify and trade. These waves are very subjective.

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Elliott Wave Analysis is a kind market analysis, which foresees trends in financial markets by means of specific patterns, called Elliott waves. The proposed method is based on G. Neely`s approach. Free weekly chart analysis of EUR/USD is available.
Find more about wave analysis at Wave Analysis Page.

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