What is Elliot Wave?
Posted Answers
There are 5 waves in the dominant trend:
Wave 1: Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force.
Wave 2: Wave two corrects wave one, but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and "the crowd" haughtily reminds all that the bear market is still deeply ensconced.
Wave 3: Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates.
Wave 4: Wave four is typically clearly corrective. Prices may meander sideways for an extended period, and wave four typically retraces less than 38.2% of wave three.
Wave 5: Wave five is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top.
Answer by Guru
The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. Elliottwave analysis is a form of technical analysis and of behavioral economics that attempts to forecast trends by identifying extremes in investor psychology, tops and bottoms in markets. and other collective activities. It is named after Ralph Nelson Elliott (1871–1948), an accountant who developed the concept in the 1930s. He proposed that market prices unfold in specific patterns, which practitioners today call Elliott waves. Elliott argued that because humans are themselves rhythmical, their activities and decisions could be predicted in rhythms, too. Although many critics argue that and the Elliott wave principle is pseudoscientific.
Answer by markb
