2023-04-04 19:47:35
Any trader knows that the market does not move in a straight line, but makes oscillatory movements. As a result, the trend looks like a sequence of waves. And, if it were possible to understand their order, then it would become much easier to earn on binary options or other types of exchanges.
Fortunately, there is one interesting theory that was put forward by the famous financier Ralph Elliott back in the 30s of the last century. According to his observations, the price has a pronounced wave structure consisting of 8 fluctuations: 5 up and 3 down. By the way, this also corresponds to the basic law of the market, according to which the price rises longer than it falls.
According to the author of the theory, the formation of waves is directly related to the psychology of trading. So, if we consider a long position, then the following comes out:
The first wave is formed after the flat. It is at this moment that large players, based on the collected data or insider information, open long positions. Naturally, the market begins to move up and this happens until some of them fix a profit.
The second wave is usually short. This is a small correction caused by the respite of the "sharks" and supported by the positions of those who had previously sold.
The third wave is a continuation of the first. Only major financiers are now joined by other market participants who have noticed the formation of a new trend.
The fourth wave is corrective again. As a rule, it is longer than the second one, since more traders take profits.
And finally, the fifth – the wave of latecomers. Here, those who have not had time to understand the situation and a small number of large players who have not yet fixed positions come into play. This wave is considered the weakest and is often truncated.
Everything ends with a change of trend and the construction of a new trend, only in the opposite direction. The downward trend, according to the author of the theory, consists of three waves.
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