Binary Options Trading: Elliott Waves Theory
Elliott Waves Theory is one of the most widely used theories associated with corrective waves that help traders to implement technical analysis and decide where their trades should be placed in order to be successful. Here we will try to tell you about it in details.
What is this theory about? Of course, it is a part of technical analysis applied to charts, but it is usually considered as its psychological part, not a mathematical one because first of all it is a detailed analysis of different trader groups’ behavior in some certain situations. Its main aim is to clarify the mass psychology which leads to swings from optimism to pessimism and backwards. Elliot insists this sequence can be measured and predicted. He broke those competitive patterns into waves.
This theory was considered a viable one in 1970’s because of its correct forecasts for the strong bull markets and it extended its popularity in 1987 because of market crash prediction.
Elliot wave theory takes into consideration five impulse or motive wave structure and three counter waves which correct the previous five.
Elliot’s theory supposes the market is split into what they call cycles and supercycles. If you divide it like that it becomes easier to calculate the waves.
The five motive waves will always move in one direction (name them 1-5) and those three corrective waves will always move in the opposite direction (name them a-c). Corrective waves are usually formed by triangles, zig-zags, and flats. The correction process is really complex and you can often find doubles and triples of the mentioned above pattern forms of the waves.