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This site, as you probably already understood, is dedicated to forecasting the stock market using such a technical tool as Elliott wave analysis(EWA).

This site primarily provides forex wave analysis and traffic forecasts currency pairs based on this analysis.

The commodity market is also represented, this is, and is represented .

All this is shown in the analytical part of the site, the latest updates on which you can find in the heading:
The general concept and provisions of the approach to trading is shown in home page site.

But in order to competently use wave analytics, you must first learn how to read the wave markup. In this article, I'll show you how to do it.

Moreover, you may not be proficient in wave analysis itself, since mastering it is a rather long and laborious process, but in order to competently use the works of a person who knows wave analysis to perfection, you must at least learn how to read wave analytics correctly, and hence wave markings.

1. Wave principle in a nutshell.

Before starting to talk about how to read wave counting, I will say in a few words about the basic principles on which wave analysis is based. . The author of the theory, Ralph Nelson Elliott, identified eight waves on stock charts that are constantly repeated (of which, conventionally, five are in the trend and three are against the trend).

fig.1. The basic model of the Elliott Wave Principle:

The impulse consists of three driving waves and two corrective ones.
In this case, in Fig. 1, the impulse of wave 1 consists of driving waves 1*/3*/5* and corrective waves 2*/4*
Correction to the given impulse of wave 1, this is wave 2 and it consists in a standard basic wave model of three waves a*/b*/c*

The driving waves are divided:
1) on a standard impulse (Fig. 2), which can be any of the driving waves and the main characteristic for these waves is the absence of the intersection of the level of waves 1 and 4.

fig.2.

2) PDS (initial diagonal structure) see Fig. 3 - the main characteristic for these waves is the intersection of the level of waves 1 and 4, and this is usually the first wave of an impulse of a higher order, or wave C, or wave a (in a zigzag).

fig.3.

3) ZDS the final diagonal structure (Nely has a terminal) - in the classical interpretation, this is the final fifth wave of an impulse of a higher order or wave C and all waves in this wave, both driving and corrective, consist of triples (abc), wave levels 1- 3′ and 4-3′ also intersect in the ZDS, see Fig.4. However, it should be noted here, it has long been proven by practice that in fact the fifth wave and wave C can not only be like ZDS, but also take the form of PDS and a standard impulse.

fig.4.

And the main rules of impulse waves are - the length of the second wave should not exceed the length of the first and the third wave cannot be the shortest.

Corrective waves:
Corrective waves are more diverse than impulsive ones, but there are two basic models of corrective waves on which all other types of corrections are based (Fig. 5).
This is a zigzag and a flat (flat):

fig.5.

In the zigzag, waves a / c are impulsive, wave b is corrective (three).
In the plane (flat), wave a/b is threes and only wave C is impulsive.

Wave nesting

Separately, I want to say about the nesting of waves. The nesting of waves (or, in other words, the fractality of waves, although I like nesting more, since it more closely matches the definition stated below) is the full correspondence of the labeling of a larger timeframe to a smaller timeframe and vice versa. Those. wave marking, like a Russian matryoshka doll, should be nested from a smaller timeframe to a larger timeframe and be laid out in the same way.

For example, if you mark an impulse on h4, then on h1 this place of the market should be decomposed into an impulse, and on M15 this place of the market should also be decomposed into an impulse.

If we say there is an impulse on h4, but there is no impulse on h1 or it is marked with great exaggeration, then the nesting of waves is violated, and therefore it is necessary either to revise the marking and look for its other options, or take it as an anomalous assumption and still consider this place an impulse, if we say additional tools, such as a correlation or a foundation insist on the continuation of the trend.

But the truth is, such situations are not so common, but not rare enough to always ignore them and not beat them.

Wave Order

Here, for a clearer understanding of the wave principle, it is necessary to say more about the order of the waves. The order of the waves is based on nesting, which was discussed above, reflected in the markup, which is shown in Fig. 1 and in the wave notation (which will be discussed later).

As can be seen from the figure, each strand of waves is assigned its own label, i.e. it can be seen with the naked eye that the wave with label 1* is of a higher order than wave 1′,
wave c* is of a higher order than wave 1′, but wave c’ is of the same order as wave 1′.

In conclusion of this section of the article, I want to say that the above are only the basic principles on which wave analysis is based. The wave analysis itself is much more complicated and you can start studying it from the page of our website.

There you can find material, both for beginners, and sign up for the Great Educational Webinar for those who are already familiar with wave analysis.

2. Reading the wave count.

There is no one generally accepted markup in wave analysis. Prechter took root in our country at the suggestion of D. Vozny. I went through a lot of notations in my time before settling on the one I use now. The main reason is that the markup should be compact and not make the chart heavier, and since my analysis method is based on the fact that I simultaneously consider and show several options for the development of events on one chart, there are a lot of numbers and letters in one place on the chart.

The prechter with its Roman numerals and parentheses makes the wave label too big, so I don't use its notation. The notation that I use now, in my opinion, is the most convenient for showing the multivariance of EWA.

If I do prioritize, I usually put it in the description below the chart. And I still left the red and blue marks on the red version, as a tribute to tradition.

Green option- the wave a^ of the assumed flat (flat) in wave 4″ has ended and the wave b^ is developing.
gray variant— wave a^ of the supposed triangle in wave 4″ has ended and wave b^ of this triangle is developing.

What gives the multivariance of wave analysis with the display of several options on one chart and how to use these options, I tell and show in detail in my

In conclusion, I want to say that not everything is so simple. If everything was like in books on wave analysis, then it would only be worth studying them and you are on a horse. But the books are general theory, and the practical part is shown schematically at best and looks, as a rule, somewhat far-fetched, i.e. it is far from practical.

Competent wave analytics with direct recommendations on the current situation in the financial markets can be obtained by becoming a member

Considering technical analysis, one of the most popular methods in trading can be distinguished - wave analysis. Wave analysis is based on charts on which price movements occur, marked by analysts into main waves and sub-waves. Based on these markings, forecasts are made about the upcoming price movement.

Just imagine how simple and easy it would be to trade on the Forex market, if the price constantly moves according to the five-wave principle, even a schoolboy could earn.

But this does not happen, the lion's share of traders merge their trading account, but what is the reason?

Is it really that hard to master the five wave principle?

The 5 wave model is the basis, but the classics of this analysis did not become limited only to it. Classic wave analysis , contains a large database of impulses, corrections, as well as their types and subspecies.

For example: truncations, extensions, diagonal and leading triangles, and the like. Corrections: horizontal corrections and triangles, zigzags, triples and double threes. Figures of reversal and continuation of the market trend and so on.

Classical wave analysis, in fact, is a theory that practical application is extremely superficial.

Directly in trading, figures will be visible only when, when the trend forms them on history. During the formation of price models, you can get confused several times, the price can resemble two or three patterns at once.

In the classical wave analysis, there is a large set of different patterns and options that in most cases will justify the direction of the trend in any direction. In order to take the movement into profit, you need criteria for confirming such an analysis method, even before your method is implemented, and not those patterns that even work on history in 50 percent of cases.

It happens that either the model ceases to be a reversal and relying on it, you will suffer a loss. The figures are clearly visible only from history. Classical analysis is more suitable for the description that analysts of the Forex currency exchange use.

Probably, all traders have heard about wave analysis at least vaguely. Waves attract traders because they allow you to evaluate the whole picture, without focusing on minor local price fluctuations. On the other hand, to become a real waver, you need to spend not a year or two, and even under this condition there are no guarantees that you will succeed, and this scares many.

More than a dozen books have been written on wave analysis, where the authors describe in detail the types of waves, the marking order, etc. on several hundred pages. imagine what you'll be facing. If it becomes interesting, you can always do self-education and delve into the mysterious world of waves.

A little history of the origin of wave analysis

Ralph Nelson Elliott thought that the processes taking place in the markets are similar to the waves in the 30s of the last century. Indeed, if you zoom out, you can see “waves” on almost any chart, the price first sharply rushes in one direction, then a small rollback follows.

And so the idea of ​​wave analysis of the market was born in his head. Of course, he did not markup by eye, it is based on the relationship between different waves. Also, when marking, Fibo levels help a lot, with their help it is much more convenient to evaluate the ratio between extremums. All in all, Elliott singled out 13 different types of waves (which differ both in amplitude and duration of formation), which were repeated in almost all markets.

If you try to very briefly describe the very idea put forward by Elliott, then the trend movement consists of 5 waves, and the corrective one consists of 3. At the same time, during the trend movement, 3 waves are directed in the direction of the trend, and 2 are corrective. The main movement falls on the 3rd wave.

The most curious thing is that these waves can be found on almost any timeframe. If you have marked, for example, on D1, then by switching to an hourly time interval on one of the D1 waves, you will be able to highlight another 5-wave structure. It's a bit like nesting dolls.

A little about the sad - skeptics about wave analysis

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The idea itself looks very attractive - after all, waves can theoretically suggest turning points long before they form. And at a time when other bidders will frantically rush from one extreme to another, you will be calm like a boa constrictor and just wait for the perfect point to enter the market

Skeptics have a few ironclad arguments:

For some unknown reason, waveforms work mainly on large time intervals, for example, on D1 or H4. For this reason, checking the truth of the markup is very difficult, almost impossible, you are unlikely to want to save screenshots and wait a couple of weeks;

On history, everything looks just great, corrective and driving waves look in their place and the beginner has a burning desire to start learning as soon as possible. Remember that the position of the waves is constantly being adjusted after the markup is made, so do not think that the formations that you see in the history were built right away in this position, most likely a retrofit was performed;

Wavemen often place a stop below the bottom of the first wave in the forecast. But where does such confidence come from that the price will go exactly in the direction of the trend? Who will give such a guarantee? It turns out that when marking the chart, they simply ignore the possibility of the situation developing in an unfavorable direction for us. One-sidedness of thinking is obvious, other methods of analysis consider all options for price movement;

And most importantly - subjectivity in the constructions. There are many variants of waves, and it is very difficult to remember them all, and do not expect that the market will always develop situations that are ideal for those patterns that are described in books. It just doesn’t happen that way, as a result, marking the chart turns into a real torture, the trader has a bunch of different types of waves in his hands and tries to figure out which one is better suited in this case. The situation is aggravated after he gets acquainted with the markup of some analyst and is horrified to be convinced that it does not match his.

From all this we draw the main conclusion - wave analysis will never give you an exact entry point, do not expect that with its help you will be able to draw up a trading plan for yourself for a week or a month. The maximum that can be achieved is to have an idea about the possible behavior of the market in the medium and long term.

If all this did not scare you away, let's move on to the specifics, we will analyze the basics of wave theory.

Fundamentals of Wave Theory

As it was said at the beginning of the article, it will not go deep into the wilds, otherwise it would be necessary to release another multi-volume book on Elliott Waves. We restrict ourselves to the most basic.

Structure of the main movement

As we said, the main movement includes 5 waves, of which 3 are trending, and 2 are corrective (at their completion it is convenient to enter the market). After wave No. 5, a larger-scale correction begins on the entire movement 1-5, this rollback also occurs according to the wave pattern - only 3 waves, it is customary to designate them with letters of the Latin alphabet A, B and C.

The above example is not ideal, if only because the corrective movement A - C turned out to be too weak. Ideally, point C should be located above point 4. But in general, the structure of the movement can be understood. By the way, the markup was carried out on an arbitrarily chosen section of history, hence such accuracy. The same screenshot shows that wave number 3 is the strongest of all the waves of the trend movement. As for the fifth wave, it can be approximately equal to the 1st, because the movement is already fading, a correction is approaching, in principle, it is allowed that the fifth wave is even shorter than the first.

Now for the relationship between the waves. It is clear, of course, that for a growing market, the waves should consistently rise, and for a falling market, vice versa, but there are clear correlations, and if the waves correspond to them, then the value of the markup increases. So:

It is also useful to know what is going on in people's heads during the formation of waves:

The first wave - the movement is very rapid. The thing is that the first wave is, as a rule, a change in trend. That is, the price manages to break through a very strong resistance/support. After the breakthrough, nothing can hold it back;

The second wave is the result of profit taking by those traders who managed to recognize the reversal. Against the backdrop of a recent breakout of strong resistance - support, most of the bidders are confident that the movement will continue in the direction of the first wave, but everyone is waiting for convenient entry points. Profit taking and gives a small smooth corrective movement. If we compare the duration and amplitude of the waves, then in terms of the duration of the formation, the second wave can be even longer than the first, but in terms of amplitude it is guaranteed to be much less;

When the corrective second wave reaches significant Fibonacci levels, a revival begins among the waiting traders, they enter the market in the hope of continuing the movement;

This is how the third wave begins - this is exactly what the followers of the wave theory of the market exist for. If you manage to catch it, then a good profit is guaranteed;

The 4th wave is the most difficult to identify. Movement here may well occur in a horizontal channel. As such, there is no pronounced correction, just the price takes a timeout before rewriting the last extremum (the one that was set in bar 3);

Wave 5 - an extreme census occurs, divergences are often observed on various indicators. An additional signal is that volumes are growing sharply by the end of the fifth wave.

The structure of the corrective movement

Speaking about the corrective movement, we will mean the three-wave movement, which occurs immediately after the main five-wave movement. For example, let's take another cycle where waves A, B, C are more pronounced.

In the example, the waves are more pronounced and, in general, this structure is closer to ideal than the previous one. Of the shortcomings, I would single out only:

Too small size of the fourth wave, and in general, the fact that it was formed during literally 2 candles is not very good;

Point A was on the same level as point 4, that is, the fifth wave was almost completely absorbed by the first corrective wave. This, too, can make a trader doubt that the growth will continue.

To assess the quality of the corrective movement, you can use the following ratios:

Wave A should be within the correction levels of 61.8%, 50.0% of the fifth wave. It is allowed to form point A at the same level as point 4;

Point B - is located at the levels of 38.2%, 50.0% of the corrective wave A;

Point C is 161.8% of wave A. If wave B was large, then point C may well not rewrite the low in point B.

The logic of what is happening is as follows:

Corrective wave A breaks through the support built on points 2-4. This causes a violent reaction of bidders, which leads to a very sharp movement, usually the correction is much more calm than in this case. It was the breakdown of support that caused the appearance of a candle with a very large body;

The formation of point A, that is, the completion of the correction is exactly at the level of point 4, that is, within the acceptable range. An additional signal in this case was that the price just reached another powerful support built through points 1 and 2. So the slowdown looks logical;

The AB wave is usually difficult to diagnose and is the weakest of the 3 corrective waves. It also happened in this example. Support had its effect, but bidders did not get the confidence that the fall was slowing down, so the rebound was small and sluggish;

Although the BC wave breaks through the support, it does not lead to a new wave of sales, the chart goes down as if reluctantly. This increases the confidence of traders that an increase is more likely, which then happens.

The waves are large, medium and small. The influence of the Fibonacci sequence on the price movement

It was already mentioned in passing that waves can be found at any time intervals. If this idea is developed, then each of the large waves can be divided into several smaller ones, and this process can be repeated, though not indefinitely, but exactly to the smallest time intervals.

Let's analyze the 5th wave movement, as we already figured out in it 3 waves are trending, and 2 are corrective. The same rule will apply to them, according to which a trend movement consists of 5 waves, and a corrective one - of 3. That is, in our case, 3 medium trend waves will give 15 small waves, and 2 corrective waves - 6 more small corrective waves. In total, we have 21 waves, that is, the standard movement presented in the screenshot above can also be represented as 21 small waves. They are poorly visible on D1, but on a smaller timeframe they are seen quite well.

All this looks great on examples when you perform markup on history. But when there is no chart on the right side and the trader needs to place the likely points for the completion of the waves, the most difficult thing begins. The markup on the history is the same as instead of a decision, peep the answer. Judge for yourself - there is movement in front of us, we know how many waves it should have, hence the beautiful markings.

If you go down one more timeframe lower, you will be able to identify even smaller waves. In this case, there will be not 21, but 89. If, on the contrary, we try to enlarge the time interval, that is, switch to the weekly timeframe, then we will see only 2 waves instead of 5.

As for the Fibonacci sequence and its influence on the price behavior, here we meant the duration of the formation of a particular wave. Let me remind you the beginning of the Fibonacci sequence - 1, 3, 5, 8, 13, 21, etc. You can also try to use this in trading. The trick is that if some movement is formed, for example, for 9 days, then it will most likely end on the 13th day, if this does not happen, then the next likely date is the 21st day. Such reasoning seems a bit far-fetched, but sometimes it works.

The main rules to remember when marking

There are some simple concrete rules that are never violated under any circumstances. Rather, they can be violated, only in this case it is impossible to talk about the formed 5-wave structure, you will have to make adjustments. The rules are as follows:

The second wave never goes below the bottom of the first wave;

The third wave should not be the smallest of the three. If it seems to you that this is the case, then most likely you simply did the markup incorrectly and v. 4 should be located in a different place;

Corrective wave 4 should not rewrite the extremum of the first wave.

In principle, these rules are enough to sketch out the markup in most cases.

Wave analysis on the machine - is it worth using indicators to mark the chart

As mentioned at the beginning of the article, the waves on the chart are marked for a reason, but in compliance with certain ratios. And although it is too difficult to implement all the subtleties in the form of indicators, it is quite possible to automate the main constructions. By the way, there are several such indicators, some of them are freely available, we will consider the most popular ones.

Elliott Wave Prophet - predictor of the future

This one differs from other similar algorithms in that it does not mark the chart on history, but performs part of the construction on the nearest segment of the chart and shows with lines how they can develop in the future. A kind of oracle.

Of the minuses - the trader will have to determine how many waves are formed at the moment. This is critical for more or less adequate markup. It is more convenient to explain this with a specific example.

Suppose that at the moment 3 waves have formed on the chart (as the trader thinks). In this case, he sets parameter 3 in the indicator settings and gets such a picture. By the way, the "jamb" of the indicator is immediately visible - it built wave No. 2 below the bottom of the first wave, but this is not true.

If you set in the settings instead of 3 formed waves 4, then the picture will change dramatically.

The constructions are also imperfect, to say the least. For example, the 4th wave turned out to be in this case almost twice as large as the third.

This indicator cannot be called bad, it is just one of those that need to be used wisely. You can’t just add it to the chart and immediately get entry points and ideal markup. You need to have at least an elementary idea about the waves, the relationship between them, and then you can get a reliable markup. Another plus of this algorithm is that the text window displays information on the waves, the relationship between them, which saves a lot of manual labor.

Wave indicator X Wave Elliott

This indicator works on the basis of the usual ZigZag from MT4. The work is carried out according to the following scheme:

The zigzag marks important movements on the chart by building a broken line;

The Elliott X Wave indicator itself only indicates with numbers those extremes that, in his opinion, are suitable for the role of waves.

It also has a number of shortcomings. for example, you can’t look at the markup on the history, besides, the indicator doesn’t even try to predict the price behavior, it just marks certain tops with numbers. Another drawback is that the main marking rules are not observed (that the base of the first wave cannot be rewritten, the requirement that the third wave must be the largest, etc.).

A lot depends on the depth of the market analysis (ExtDepth item in the settings). So if you decide to use it in trading, then be prepared for a long enumeration of settings until something worthwhile happens.

Wolfe Wave Indicator

Wolfe waves are somewhat different from conventional wave analysis. But the idea itself remains the same. Only a 5-wave main movement is used, the market entry is assumed at point No. 5, and the profit-taking level is indicated by a beam passing through points 1 and 4.

The corresponding indicator (Wolf Wavw nen) allows you to perform all the markup fairly reliably without serious errors. This was achieved due to the fact that Wolfe waves do not use all that mass of variations in the ratios between waves, a clear 5-wave structure is used, so the indicator has nowhere to make a mistake.

An example markup is shown in the screenshot. Entry at point 5 would have already closed the deal with a profit.

Download a selection of Wolfe Wave indicators

FX5_NeelyElliotWave - multi-timeframe markup

The algorithm used in the indicator is based on the relationships between the waves described in Neely's book. Hence the name of the indicator.

After adding the indicator to the chart, the picture may scare you - you will see the interweaving of lines of different colors and thicknesses, at first glance, a useless hodgepodge. In fact, the lines display a picture that occurs at once on several time intervals (you can disable this in the indicator settings).

Unfortunately, the indicator will not do all the markup for you, so the trader will have to put down the waves on his own. This cannot be called a disadvantage, just a feature of this indicator.

Conclusion: Wave Analysis of the Forex Market

If Elliott Waves were easy to learn and gave a 100% result, then the market as such would no longer exist. Everyone would suddenly start trading profitably, and such an idyll would not last long.

A significant drawback of the wave theory is not that it is difficult to study, but that even after spending a couple of years studying, you still won’t get rid of subjectivity when marking a chart. Everything else could be put up with, but this is what makes it special, the rules are too vague, there are too many of them, and too much is left to the discretion of the trader.

Think about this before diving into the world of waves. This activity is very exciting, perhaps wave analysis will become something of your hobby, but no one can guarantee that you will trade profitably with it. Evil tongues say that seasoned wavers are not able to trade profits based only on wave analysis.

Using wave analysis in the market, a trader can most accurately predict the price behavior in a particular time period. This type of Forex market analysis can become one of the most important indicators of success and effective tool professional trader.

How to use wave analysis?

According to the Elliott wave theory, the price movement of any currency pair can be displayed on the chart in the form of waves. The waves are divided into three impulse waves, which are directed towards the main trend, and two corrective waves, which are directed against the trend. These waves are indicated by the numbers 1, 2, 3, 4, 5. When the trend ends its active development, the price movement correction begins, which is displayed on the chart as three waves. Two of them are driving and one is corrective. These waves are designated A, B and C.

The essence of wave analysis is that the price movement is natural, and the same pattern of the price "path" is constantly repeated. Using wave analysis in the Forex market, it is possible to calculate the price behavior at a particular stage of the trend and, taking one of the waves for profit, close the deal on time, making a profit. In order to reduce the risks of losses in the Forex market and correctly set the stop loss value, you should pay attention to the wavelength. As a rule, the longer the impulse waves, the longer the corrective ones will be.

The main difficulty in applying Elliot wave analysis is to correctly determine the type of wave. In order to correctly predict the price movement, it is necessary to accurately identify which waves are impulsive and which are corrective. As a rule, corrective waves are the most difficult to determine. Elliot Wave Theory is applicable to any traded financial asset– from stocks and bonds to the EUR/USD currency pair.

Despite the constant volatility of the market, it is predictable. It turns out that if a trader can find out the price movement, then you can make money on it. How to do it? Today, there are quite a few tools that allow you to conduct high-quality technical analysis. Elliott wave analysis is one of them.

Note that there are eight market waves, which constantly have the property of repeating themselves. This is what allows us to make a profit. If you are really interested in how to apply wave analysis to foreign exchange market make good money, read this material to the end.

Let us immediately note that Elliott wave analysis is not an easy task, which cannot be said about other trading strategies that are used in the Forex market. Only those who study the theoretical part in detail will be able to use it on the price chart. Real pros who make money with the help of wave analysis argue that for this you need to thoroughly study not only the theory, but also consolidate it in practice. Just imagine how much more profitable trading will be if the trader knows not only the trend reversal period, but also the market entry points.

Again, not every novice trader succeeds in studying the Elliott wave analysis. But if he is imbued with it, he will be able to achieve great results in the foreign exchange market. To date, wave analysis is carried out according to a more simplified scheme - through special Forex indicators that demonstrate wave fluctuations.

The essence of the Elliott wave theory

At one time, this theory was created by a simple economist Ralph Elliott. He worked for a railroad company. Once he analyzed the dynamics of the market and suddenly discovered an interesting pattern for himself - there is no disorder in price fluctuations, The market moves in a pattern. In other words, assets on commodity, currency, stock market and even exchanges operate depending on the mood of their participants.

So, the basics of Elliott wave analysis suggest the axiom that price fluctuation can be classified into eight wave patterns. In the case when the pattern at the initial stage of its formation is noticed by the trader, this makes it possible to determine with a high probability the further course of the price, as well as when to open a deal, and even in what places to take profits.

Note that the Elliott wave analysis has both adherents and opponents. Its main disadvantage is the fact that it is not always possible to determine the beginning of the model of a particular wave. However, the sequence of Elliot waves allows you to identify additional indicators, and this simplifies the entire process of technical analysis by an order of magnitude.

Advantages and Disadvantages of Modern Elliot Theory

We emphasize that every self-respecting trader should know this theory, since it fully allows you to understand all the patterns about the dynamics of the market. Thus, Elliot wave analysis is a universal method technical analysis, which allows even a less experienced Forex market participant to make a decent profit. After all, having opened an order in time, the trader receives an increase in profit.

Those who trade using the Elliott Wave theory have probably found the key to understanding the laws by which Forex works. It certainly is. Timely entry and exit from the market will allow the knowledge gained after studying this theory.

In addition to the significant advantages that Elliott Wave analysis has, the theory, like all other trading tactics, is not without drawbacks. Among the main negative points are the following:

1. Elliott Theory, like its fundamental principles, is seen by traders in different ways. This theory is purely subjective.. Since each trader interprets the market in his own way, then the size of the wave for each will have its own value. As a result, strategies will be different for everyone.
2. Even an experienced participant financial market unable to quickly assess the situation and respond to price changes. Finding out what wave the Japanese candlestick is currently on is quite difficult.
3. There is a lot of different literature on wave analysis, as well as a number of studies. It is almost impossible to study all the material. In addition, each author, as part of an individual study, offers his own ideas, which will cause some confusion in the beginner's head.

Despite these shortcomings, Forex wave analysis continues to be very popular among traders of all types. Moreover, new developments in the world of indicators make it possible to significantly simplify wave analysis.

Basic impulse pattern

The basic impulse in the classical sense has 5-wave structure. Impulse are 1, 3 and 5. Corrective - the second and fourth.

Corrective and impulse patterns in conjunction make up complete wave cycle. It is designated a-b-c. That is, in the understanding of Ralph Elliot, a full cycle is an eight-wave candlestick formation.

In the market as part of wave analysis, the cycle must be constantly repeated. In other words, the impulse should be replaced by a correction and vice versa. But the whole snag and the main difficulty lies in the fact that more complex corrections are formed on the chart. We will talk about them further.

Schematically, Elliott Wave Analysis looks like this:

Figure 1. Basic cycle.

And here is the basic cycle on the price chart:

Figure 2. Basic cycle on the chart.

Schematically, the complete cycle is depicted as follows:

Figure 3. Full cycle (scheme).

On the price chart, the full cycle looks like this:

Figure 4. Full cycle on the chart.

We analyze the wave structure

Each wave within the framework of the Elliot theory can be disassembled into sub-waves, while the integrity of the theory itself will not be violated.

It's time to talk about what are the rules for building waves in an impulse:

• The second wave will not retrace more than 100% of the first wave. If this happens. That will be a correction for a downtrend.
• The fourth wave should not retrace more than 100% from the third wave. Otherwise, the wave that was taken as the fourth wave is an impulse for a downtrend.
• The third wave is the longest because it cannot be short within all the other waves. By the way, it may have the second place in length, but not the last.
• The third wave will always be further than the first wave.
• The fourth will not move to the location of the first wave.

The shortest third wave cannot be a priori. It will always be larger than the first or fifth wave. Schematically, the detailing of the waves is made below:

Figure 5. Detail of the waves in the diagram.

And here is the same detailing of the waves, but in a candle version:

Figure 6. Detailing the waves on the chart.

Building with broken rules

deep correction

In wave analysis, we will consider corrective Elliot waves, which look in the opposite direction from the main impulse, as rollback movements in wave analysis. With the help of three-wave structures, all corrective formations develop. They can have a variety of shapes and types. Perhaps the most common is a deep correction.

Wave analysis trading involves the presence of deep corrections, sometimes by a large momentum (Fibo levels 61.8 and 78.2).

Deep correction may look like:

• double zigzag;
• zigzag;
• triple zigzag.

The waves must match the zigzag:

• Wave C = 0.618.1, 1.618 (A) (Fibonacci extension);
• Wave C = 1.272 (B) if B is a deep correction (Fibonacci grid);
• Wave C = 1.618 (B) if B is a flat correction (Fibonacci grid).

When Forex wave analysis is carried out, but the price does not reach the target, a more complex technical analysis pattern is formed, say, a double zigzag or a triple (less often). In such conditions, the use of such markings will save: (y), (x), (w), (x), (z).

Waves must follow the following pattern:

Figure 7. Wave matching.

Double and triple zigzag

Figure 8. Double and triple zigzag.

When wave analysis of the Forex market is carried out, a stronger Fibo level of 61.8 can be applied:

Figure 9. An example of working out the level 61.8 according to Fibonacci.

About flat corrections

Do not expect this type of correction to roll back deep enough. This will not happen especially in relation to the previous impulse movement. We are talking about triangles, various planes and a combination of triangles. Often, as part of the wave analysis of the Forex market, you can count on a price rollback to Fibonacci levels of 23.6 and 38.2.

Flat corrections often form the fourth wave, sometimes the second. The ratio is: at wave C = 0.618, Fibonacci extension 1.618 (A).

Note that when we look for entry points in wave analysis at the time of a strong price surge, the presence of a flat is very striking. Often it preceded the stretch or this movement.

A flat will always be short with a strong trend move. However, if flat short corrections are observed, then one should count on a stronger price movement. Their structure is classified as follows: 3-3-5. Schematically it looks like this:

Figure 10. Schematic example.

Graphically like this:

Figure 11. Flat correction.

So, we managed to briefly talk about how to properly conduct Forex wave analysis for profitable trading. In particular, the Elliott waves were analyzed in detail and the analysis of the rules by which they are built was carried out. Now you can easily apply these rules for more profitable trading.