When evaluating the forex market for swing trade opportunities the focus is placed on predicting directional changes or continuations for a currency pair. For this we rely on technical analysis.
In technical analysis, as in fundamental analysis, there are lagging indicators and leading indicators. One of the most reliable tools to predict fluctuations in the forex market, Elliott Wave analysis. Elliott Wave analysis can be used to show trends and counter trends to identify trendsContinuation or exhaustion and to evaluate the potential price targets of a trend.
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You can apply Elliott wave analysis of both trade long and short position rotational set-up for the currency pairs.
Elliott Wave Theory is after Ralph Nelson Elliott, who has called the markets closed in a repetitive pattern of waves is moving. He took this action to the mass psychology of the market.
Elliott concluded that the market movement was a direct result of mass psychology oftime, and that the stock market is a fractal. A fractal is an object that is similar in form but at different scales. A good example of a fractal in nature is a stalk of broccoli. The trunk and branches look exactly the same individual, only the smaller branches to scale.
Fractals happen to be in line with Fibonacci ratios. It is a coincidence?
Elliott attributes this mass movement for the humane treatment of psychological sheep. Although ElliottTheories of exchange rate movements were based, was to assess approval ratings of President and fashion trends changes as well as applied.
The conclusion is that market prices do not slow down the cause of action for economic growth, or rather the reflection of the mass psychology of investors. If the mood of the investing public is upbeat then a bull market. This is contrary to what most individual perceive, that there is a bull market, the mood of the investingThe public is optimistic.
Elliott Wave patterns follow a sequence that moves the markets in a series of 3 waves and down on a series of 2 waves. This 3-pulse waveform, and 2 sequence of corrective foundation of 5-wave impulse pattern (the opposite is true in a downtrend).
Elliott Wave Counts are as follows;
Wave 1 - Short Covering
Wave 2 - Pullback from short covering
Wave 3 - Major Rally Phase
Wave 4 - Establishment of pause in the rally
Wave 5 -Retail sales
Wave 1 is usually the weakest of the impulse waves. There is a brief rally on short covering of the bears from a previous low. If Wave 1 is complete, the two sold-out, creating Wave 2
Wave 2 ends when the market fails to make new lows. You often see dominant reversals patterns form at the end of this wave signaling the being of the rally phase or Wave 3
Wave 3 is the longest and strongest wave pulse. These signals were stronglyBuying or selling currency in the direction of the trend. This trend usually starts slowly, but tends to accelerate as it breaks to new highs over the top of the tree 1.
Occur as with any trend, especially a strong trend at the moment. Traders are beginning to take profits and the currency pair will retrace. This marks the beginning of Wave 4
Moreover, the currency pair is coming to the rally wave 5 rally. Wave 5 is usually from the retailers and is not supportedinstitutional buyers (the herd) and tends to lack the momentum generated in the Wave 3 rally. This creates divergence that can be easily measured on any technical oscillator. After the currency pair breaks to new highs above the previous Wave 3, the rally loses steam and changes trend.
This trend may be a new 5-Wave impulse pattern or a corrective nature of lead.
Now that we know what the Elliott Wave analysis is, how would a currency trade with this analysisthat seem to give an example?
Look wave 5 as the most reliable pulse wave negotiable. The traffic is broken down as follows. Make sure the Elliott Oscillator to pull back to between 90% and 140% of Wave 3 high on a daily chart. This pullback should correspond to a 38% -62% Fibonacci retracement of the Wave 2 extension. This signal is the strongest when the Fibonacci retracement is between 38% - 50%.
Like any technical analysis tool you do not want to put a marker as a standOnly an analysis tool. A trigger and a confirming indicator are required as well.
Look for a trigger in candle patterns, such as Harami, Tweezers or Harami Cross. There are a variety of software packages on the market, leading Elliott Wave counts and other indicators of the input signal.
Draw a regression channel on the Wave 4 retracement and look for a break above or below the channel as confirmation to enter the market.
Do not put more on the high of the Wave 1 advance,just below the 38% Fibonacci retracement level or where your individual trading plan dictates. Your path stops once the currency pair has advanced beyond the third wave as a doji candle reversal patterns Search, hammers, shooting stars or hanging mans for signals that the campaign is ended or stalled. A typical price target is 127% retracement of the Wave 4 low.
This is just a glimpse of how Elliott wave analysis can be used for your evaluation forex swing trading to improve. Viewmore Elliott Wave theory and other strategies as tools to increase your forex swing trading opportunities.
Forex Trading with Elliott Wave Swing
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