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Ralph N. Elliot
and his book, called "Nature's Law - the Secret
of the Universe," were responsible for the
founding of Elliot Waves Theory, that attempts
to explain the mighty DOW in terms of sequence
of waves and repetitive rhythm. Due to misuse
and abuse by many, it has become a head-spinning
method, difficult at best, to apply to market
forecast, albeit it is no doubt a great tool for
followers to explain the past market.
Nonetheless, however, it is a
useful tool to learn and, at least, to know for
the purpose of supplementing other types of
technical analysis. The best and simplest way to
understand and apply Elliot Waves technique is
to know the following according to the Elliot Waves
theory:
1) A market cycle completes
itself in a series of eight trending and
counter-trending waves.
2) The first five waves are
parts of a trend, and the last three waves are
parts of a correction against the previous
trend.
3) The first five waves are
called Wave 1, Wave 2, Wave 3, Wave 4, and Wave
5, of which W2 corrects against W1, W4 corrects
against W3, and W5 marks the last extension of
W1 and W3.
4) The last three waves are
called Wave A, Wave B, and Wave C, wherein Wave
A corrects against W5, Wave B corrects against
Wave A, and Wave C corrects against Wave B.
It is worth noting that the
number of Elliot Waves sequence, 3, 5, and 8, do
fall on Fibonacci sequential numbers. Hence, it
may very well be another way to explain the
marketplace without attributing to wonders of
Fibonacci.
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