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This is what R.N. Elliott said, “Practically all developments which result from (human) social-economic processes follow a law that causes them to repeat themselves in similar and constantly recurring serials of waves or impulses of definite number and pattern.” R.N Elliott is famous for discovering the Elliot Wave Principle.Learn the Elliott Waves. Know fibonacci retracement. Discover a revolutionary new forex robot.

Elliott wave analysis tries to separate the price action into a number of waves that give valuable information about the duration of the trend. R.N Elliott discerned various types of wave patterns and labeled them. He discovered that there are basically two types of wave patterns. 1) Impulse wave. Impulse waves are waves that move in the same direction of the main trend of the market. An impulse wave consists of five smaller waves.

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So what is an impulse wave? An impulse wave is a wave that moves in the direction of the market trend. It subdivides into 5 smaller waves. Waves, 1, 3 and 5 move in the direction of the market main trend. Waves 2 and 4 move against the market main trend! They are called corrective waves.

2) The second type of waves is known as corrective waves. Waves that move counter to the direction of the market trend are known as the corrective waves. Corrective waves consist of two smaller waves. Waves therefore can be analyzed in times periods ranging from a matter of minutes to days to months and years.

Wave 3 is usually the longest and the strongest wave. In wave 1, the currency pair makes its initial upward move. In wave 2 the currency pair is considered overvalued.

The most difficult part of Elliott wave analysis is correctly labeling and counting the waves. Elliott discovered that each wave whether impulse or corrective subdivides into smaller waves or is part of a larger wave.

Wave counting is quite subjective. It usually results in as many forecasts as there are Elliott wave forecasters. A correct counting of the waves can help the analyst to achieve amazing accuracy in forecasting the market. An incorrect wave count however, will give a wrong forecast.

It is due to this reason that some people say that Elliott wave analysis is useful only in hindsight. Meaning it is not useful in predicting the future course of the market. However, majority of people who have used Elliott wave analysis strongly disagree with this proposition.

Even if you are not interested in Elliott wave analysis as a trading technique for short term profits, an understanding of Elliott waves still have value because it brings to the investor a strong historical perspective.

Markets that go up eventually do come down. Markets never go in one direction. The sheer power of the Elliott wave analysis as a forecasting tool creates a great deal of confusion and worry about the market.

It is up to you to make a decision whether market timing should be of consideration when you make your own investment decisions. The followers of the Elliott Wave analysis believe that market timing is of critical importance in investment decisions.

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