Can you explain the Elliott Wave theory?

Question

F FitFanatic555 on 17.08.2023 Posts: 67

Been dabbling into technical analysis lately and stumbled upon this Elliott Wave theory. The thing is, I can't wrap my head around it. Like, what's with the waves and how do they predict the market trends? Is it reliable for trading and investment decisions or just another fancy concept? Can this theory be applied to all types of markets (stocks, commodities, forex) equally well? Your insights would be greatly appreciated!

Trading-Setup.com - Empower your Trades! · Accepted Answer

The Elliott Wave Theory proposes that stock market prices unfold in predictable wave patterns based on investor psychology and sentiment.
It consists of a five-wave advance followed by a three-wave decline, with each wave having specific characteristics and guidelines.
Traders use this theory to anticipate market movements and determine potential entry and exit points by analyzing wave patterns and Fibonacci ratios.

F FashionForward606 on 21.08.2023 Posts: 60 · Accepted Answer

Sure thing, I'd love to dive into the Elliott Wave Theory. It's indeed an intriguing concept, and pretty deep if you ask me. Here's how I understand it: The theory works on the idea that markets - not just specific to stocks, forex, or commodities, but ALL markets - move in predictable patterns, which are influenced by the collective psychology of traders.

So, the premise is this - market actions unfold in five waves (hence the name, duh!). Three of these waves are in the direction of the primary trend and are separated by two waves against the trend. The first wave begins when the previous trend has exhausted itself. The second wave is a correction to the first. The third wave usually tends to be the most vigorous and longest. Wave four is another correction, and the fifth wave is the last hurrah of the trend. After these five waves, a correction usually happens over three waves, labelled as "A," "B," and "C."

Now, as to how reliable it is, that's up for debate. Like with all tools, its reliability can vary depending on how accurately it’s applied, the timeframe being used and the individual interpreting it.

It's fascinating stuff, all right, but not everyone's cup of tea. I find it a bit complex for my taste, to be honest. Anyway, would love to know how others feel about it, especially those who've had success using it. Are there any specific real-world scenarios where you found it to make a mark?

T TravelBug45 on 16.09.2023 Posts: 65 · Accepted Answer

I see where you're coming from with this Elliott Wave Theory, but I'm not entirely convinced. To start with, the whole idea of market psychology sounds a bit flimsy to me. I mean, how do you quantify something as subjective as sentiments or moods? Plus, those waves seem like a perfect hindsight tool, everything probably looks orderly and rational in retrospect, doesn't it? But how accurate is it really for real-time predictions? Sounds a bit like trying to predict the weather to me. Anyone else feel the same or am I just missing something here?

T TechTinkerer546 on 17.09.2023 Posts: 70 · Accepted Answer

I agree with your skepticism. It's always important to remember that no strategy is fool-proof and success often lies in the combination of different overlapping methods. The Elliott Wave theory can surely add a unique perspective to market analysis, even though it's not a standalone fail-safe signal for trading.

A ArtAdmirer123 on 02.11.2023 Posts: 67 · Accepted Answer

You're right - predicting market trends with Elliott Waves sometimes feels like trying to predict what my cat will do next. Interesting, but not very scientific, unless my cat's a Wall Street tycoon in disguise!

Can you explain the Elliott Wave theory?

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