Wave analysis is so complex that only a few professional Forex traders master it perfectly. But every successful player in the market must know its BASICS.

Why do we need the basics of wave analysis? Then, to understand and see:

• algorithm for the movement of your working currency pair;
• the point at which the currency pair is located at THIS minute during this movement;
• prospects for further movement.

Let's look at the CAD/JPY (H4) chart from the point of view of wave analysis of the MF (modification of Elliott's VA), combined with other MF instruments.

Rice. 1. Price movement using the example of the CAD/JPY currency pair

Comments MasterForex-V:

Once again, carefully examine and then analyze the picture from the closed forum of the MasterForex-V Academy. We understand perfectly well that this is very, very difficult. But now you have the opportunity to make an informed choice and decide what to do next:

How much can you earn by choosing the path of study at the MF Academy?? As the experience of autocopying transactions of Academy students who use this service during training shows, on average they get from 250 to 500% per year in foreign currency and on break-even, win-win vip accounts that allow you to combine opportunities:

1. Earnings of the trader himself (100-200% per year).
2. 150% of the NordFx bonus involved in the drawdown (with a 3K deposit, you are credited with 7.5K to your account with the right to withdraw profits above this amount), or 100% of the bonus from other brokers. This bonus increases your profit by 2.5 times for every dollar invested. So, 100% of the profit from 7.5K turns into 250% of the money you invested (3K).
3. and 15-20% of the profits, which are transferred to managing traders by numerous investors from Israel and the EU to the USA and China.

So is wave analysis worth learning or should you skip it? Those who answered “yes” will read further:

• In this chapter - about general outline and the differences between technical and wave analysis (the same models of trend reversal and continuation through the eyes of a wave analyst).
• In the next chapter - ( summary books by Frost and R. Prechter, Balan, Vozny, etc.).
• In the third chapter -.

What does wave analysis give a trader and how does it differ from classical technical analysis?

Wave analysis:

1. Helps find the beginning of a trend, considering the movement currency pairs not from the point of view of reversal and trend continuation patterns, but from the position of the internal algorithm - waves of impulse (trend) or correction (flat).

   Let’s compare the “head and shoulders” trend reversal pattern in classical technical trading analysis (in Fig. 2 on the left) and the same trend reversal pattern from the point of view of wave analysis. It turns out that the drop down was only a correction (rollback). Therefore, at the end of wave C, you need to open a buy deal.

   
   Rice. 2. An example of technical and wave analysis of the same market situation

   This wave marking helps to understand why there are numerous complaints about the head and shoulders figure. As soon as a trader opens a sell order, the market moves... in the opposite direction.

2. Helps you CONSCIOUSLY take profit by determining in real time WHERE and on WHAT wave you open an order on the market. Wave marking more accurately suggests entry points into the market than “ ” or any other method technical analysis.
   Rice. 3. Selecting points to enter the market according to wave analysis
3. Shows impulse targets (138-162% and above) along the trend and in correction (38-76%).
   Rice. 4. Targets of impulse 3rd and 5th trend waves
   Rice. 5. Correction targets - 38-62%, or maximum 76%

   Thus, the Forex trader understands what levels the price is tending to, where and why it is necessary to open and close transactions.

4. Helps you easily find a flat ( a-b-c waves both ways).
   Rice. 6. The market is flat

   None of the traders like flat trading. Wave analysis helps to determine it online, when CORRECTIVE waves go both up and down (a-b-c). This means that there is a correction of the SENIOR TF, after which a strong and powerful impulse will begin.

   It is better to wait out this correction while outside the market, which will always be suggested to you on the closed forum of the Academy of MF.

5. Makes it possible to IDENTIFY any trend continuation figure (flag, pennant, etc.) as corrective waves.
   Rice. 7. Trend continuation pattern in the form of corrective waves

   Allows you to understand where to place your feet (locks, locks). Wave analysis provides a clear answer to this important question. For example, when the price is below the base of the first wave (the trend is canceled) or below the base of the wave of the older TF.

   Rice. 8. End of trend

From all of the above, we can conclude: without knowing the BASICS of wave analysis, your profit on Forex can only be random.

What does a trend look like in real time (from materials from the MasterForex-V Academy)

Pay attention to clear signs of a bullish trend(Fig. 9):

• 1st bull wave(purple color) has a 5-sub-wave structure. This is a sign of momentum and a POSSIBLE trend change from bearish to;
• 2nd wave(yellow color) has CORRECTION a-b-c structure and does not break through the base of a new bullish wave. When its maximum is broken, the 3rd wave, beloved by all traders, begins;
• 3rd wave(gray), also having a five-wave structure on lower timeframes (1st in the 3rd, 3rd in the 3rd, etc. with targets above 162% up from the 1st wave).

Rice. 9. Signs of a bullish trend according to wave analysis

AO or MACD indicators for the 1st wave (purple background) confirm the beginning of a bullish trend. The following conditions are required:

• 1st subwave: the histogram goes above 0 in a bullish trend;
• 3rd sub-wave: AO histogram is above the 1st wave;
• 5th subwave: divergence. The histogram is below the top of the 3rd wave (it can go below 0).

How Bill Williams increased his trading deposit from $10 thousand to $198,977 using wave analysis

Bill Williams in his book “Trading Chaos” gave perhaps the most powerful impetus for the popularization of wave analysis of trading. In a simple and accessible form, he showed how to determine the 1st wave (point 0 on the chart). Then, in his opinion, you just need to follow the trend, opening trades in accordance with the main direction of price movement (see Fig. 10).

Rice. 10. The beginning of the first wave and the trading plan according to Bill Williams

For their part, the teachers of the MasterForex-V Academy drew up a detailed plan for capital management (money management), explaining the logic of opening and closing transactions (see Fig. 11).

Rice. 11. Money management according to the MasterForex-V Academy system

For those who are already convinced of the need to study the basics of wave analysis, we suggest that you familiarize yourself with special literature on this topic and visit the following Internet resources:

• Free illustrated magazine of traders "Exchange Leader".

For a more in-depth study of the Fundamentals of Wave Analysis, we recommend reading the following books:

• A. Frost and R. Prechter. Full course according to the Elliott wave law
  B. Williams “Trading Chaos.”
• R. Balan Elliott wave principle - application to the FOREX market.
• D. Vozny. Elliott code. Wave analysis of the Forex market.
• G. Neely. Mastering Elliott Wave Analysis.
• C. Miller. Study of the relationship between the theories of cycles and Elliott waves.
• R. Fisher. New Fibonacci trading methods.
• R. Fisher. Subsequence. Applications and strategies for traders.
• E. Peters. Fractal analysis of financial markets. Application of chaos theory in investment and economics.
• D. Di Napoli. Trading using Di Napoli levels.
• R. Swannell. Market forecast using a new refined pattern recognition system based on the wave principle.
• A. Frost and R. Prechter. The Elliott Wave Principle is the key to understanding the market.
• T. Joseph. Simplified Elliott wave analysis. Practical application of a mechanical trading system.
• D. Murphy. Technical analysis of futures markets.
• A. Cherepkov. Theory of Long Waves by N. D. Kondratiev.
• E. Nayman. Small encyclopedia of a trader.
• A. Kiyanitsa, L. Bratukhin (eds.). Fibonacci levels. Where the money is.
• M. Chekulaev. Fractals.
• V. Safonov. Practical use of Elliott waves in trading.

You can easily find all these books by searching Yandex or Google. We recommend starting with these books:

• A. Frost and R. Prechter have truly provided the most "Complete Course on Elliott Wave Law." This is the main fundamental work on wave analysis of all areas of trading (commodity and commodity markets, stocks, futures, Forex).
• The books by D. Vozny (translator of Prechter into Russian) and Balan are the applied application of wave analysis to the Forex market.
• Bill Wilms' work "Trading Chaos" is a more popular publication for a wide range of potential traders. It provides the basics of wave analysis. The author combined them with his Profitunity trading system, consisting of indicators: Alligator, Awesome Oscillator (AO) and Fractals, as well as the bullish/bearish reversal bar pattern.

In order not to get confused in the many smart tips from these books, before reading them we strongly recommend that you study the material in our next chapter: Here you will find a brief summary of the works mentioned.

– a graphical method of technical analysis that allows you to evaluate the behavior of market players based on studying the waves of price movement. The basic postulates of the system were formulated in the mid-thirties of the last century.

The creator of the theory is Ralph Elliott, but the famous financier Robert Prechter made an equally significant contribution to its development and popularization.

Description of Elliott Wave Theory

The basis of Elliott's theory is the observation that every trend consists of certain basic sections (waves) that are constantly repeated.

There are two types of waves on the market – impulse and corrective.

The former move in the direction of the main trend. The second ones, accordingly, are corrections to them. The main figure of wave analysis consists, in fact, of one impulse and one corrective wave (1-2-3-4-5/ABC). It, in turn, is divided into impulse and correctional waves of the lower order.

Impulse waves are designated by numbers from 1 to 5, correctional ones - letters A, B and C. According to Elliott's theory, each trend is a combination of such “fives” and “threes”.

Any trend lasts until five waves are formed, after which it either unfolds, or is being adjusted. In the latter case, three correction segments are then formed. In total, eight waves occur within such a growth-decline cycle. If a reversal occurs, then we observe two impulse waves formed by ten segments.

Let's break down the structure in the above screenshot. Elliott waves 1,3 and 5 are pulsed. They follow the general trend. Waves 2 and 4, respectively, correctional.

In the correctional structure ABC, the situation is changing somewhat. Since this structure is part of a general downward wave (corrective), waves A and C are considered impulse here, and wave B, directed upward, will be corrective.

Elliott wave advantage

is that such structures can be found in both upward and downward markets. In the latter case, we are talking about a mirror image of the bullish structure. That is, all impulse waves 1,3 and 5 will be downward, and 2 and 4 will be upward corrections. Accordingly, in the correctional wave A and C will be upward, and B will be downward.

It is important to note that the structure of the trend does not depend on time scales.

Video - Elliott Waves

Elliott wave rules

It is not so difficult to identify five or three areas in any trend by eye. Roughly speaking, anyone who can count to ten can do this. The problem is that two traders analyzing the same chart may well come to absolutelyopposing opinions regarding its structure. To remove the subjectivity of visual assessment, the basic rules for wave formation were developed. Some of them were created by Elliott himself, some were subsequently added by other theorists.

Let's start by listing the basic rules:

• The second wave of the impulse should not fall to the level of the starting point of the first wave. If this happens, then it is worth questioning the very fact of trend development.
• The third wave of the impulse must exceed the extremum of the first. In addition, it cannot be the shortest of the three pulses if we are talking about large-scale time periods.
• The fourth wave of impulse cannot fall below the extreme of the first. This rule is sometimes neglected in real market trading, but in such cases the following condition must be met.
• The fifth wave of the impulse should be above the extremum of the third.

Additional

• Corrections within an impulse must differ in complexity, nominal size or formation time. If there are no differences in at least one of these parameters, the development of the trend should be questioned. There is a possibility that in at the moment some complex correction model is being formed.
• In a pulse structure that meets all the requirements, one of the driving waves must be extended, that is, exceed the other two in nominal size.
• Three adjacent waves that are part of the impulse must be formed at different times.

Based on the above rules, a trader can distinguish between impulse and correction structures. If the wave meets all the requirements, thenshe belongs to the first type. If the conditions are not fully met, it is either a correctional structure or an impulse that has not yet formed.

• If the third wave is larger than the fifth and first, then the latter will be approximately equal in length. This recommendation may be useful when analyzing the end of the fifth wave. Even if the fifth wave is longer than the third, and the third is longer than the first, we will still be able to calculate the end of the fifth wave. To do this we need the top of the fourth wave.
• In the process of observing wave structures, another interesting pattern was revealed - the sizes of correctional waves 2 and 4 can be different, and they alternate from time to time. For example, if the correction in wave 2 was quite strong, then in wave 4 it will be insignificant and vice versa. Using this recommendation, you can approximately calculate the time of correction in the fourth wave. If, for example, in the second wave there was a significant and rapid correction, then in the fourth it will be calmer.
• Another interesting fact. The completion of the corrective wave ABC should take place at the level of wave 4 (the minimum value).

Elliott wave theory in practice begins with plotting a graph. To solve this problem, it is better to use indicators; we will talk about some of them below. Experts recommend using a standard candlestick chart for analysis, as it is the most informative and objective. Elliott waves on the chart:

• The first step is to identify a significant turning point. To do this, you can use a tool such as a signal line. From the moment it crosses, the period that we will consider begins.
• Once the reversal point has been determined, we should assign names to all the waves of interest to us. This is a rather complex process, the correct execution of which directly affects the quality of subsequent analysis. It is important to remember that the assigned structural designation cannot subsequently be revised unless there are compelling reasons for doing so. The choice of time scale is up to the trader, but it is recommended to use segments no longer than thirty monowaves. Next, movement marks are placed.
• At the final stage, the wave is compressed, that is, it is assigned the appropriate structural designation in a similar system on a larger scale. Thus, gradually the entire chart will be assembled into one of the basic Elliott models.

Now the trader sees the construction of the market and can predict how it will develop further.

Elliott waves in practice

The most common reason for trading the Elliott system is the presence of an impulse wave from a trend reversal point. Positions must be opened in one of the three moving sub-waves, but you should be careful, as there is always a possibility that the chosen structure will be part of a larger corrective pattern. After the formation of an impulse wave, you must wait for the first correction. Its completion is a signal to enter the market.

Conservative method

After the movement towards the initial impulse has resumed, a signal line is drawn through the reversal point and the point of expected completion of the correction. A buy position is opened at the high of the first driving wave. If the price movement does not reach the order and reverses, breaking through the signal line (this happens in the case of a complex correction), you need to make sure that it does not fall below the reversal point. When growth resumes, the line is adjusted to the new low.

If the position was opened immediately, you need to continue to monitor the signal line. As soon as the price drops and touches it, the deal is closed and a new order is placed at the level of the extreme maximum. You should not be upset if, after touching the “signal”, the price curve immediately goes back in the direction of the trend. This is a working moment that should be taken philosophically; moreover, the resulting loss can still be compensated by a new contract.

Moderate and aggressive methods

The initial conditions for opening a position with a moderate strategy are similar to conservative trading. The difference is that the order is placed at the end point of corrective wave B. You must always remember that the expected correction may be delayed. Adjusting the signal line and exiting a position is carried out according to the same principle as in the previous method. This option is recommended for novice traders.

With an aggressive strategy, an order is placed only after the signal line is broken. It is believed that the very fact of such intersection indicates the completion of the structure and the beginning of the formation of a new model.

Indicators for Elliott Waves

There is no ideal indicator for plotting Elliott waves, but a variety of modifications allows each trader to find the option that best suits his style. Let's look at a few popular tools.

Elliott Wave Oscillator

This is an indicator whose chart displays a histogram (similar to). The highest peaks correspond to the third driving wave of the impulse. Can be used on almost any timeframe, however, too short intervals are not recommended.

When the histogram crosses the zero mark below/above, a divergence is formed, signaling the completion of the next wave cycle. If at the time of the first corrective movement the oscillator breaks through zero in the opposite direction, the formation of wave 3 should be supported by another divergence. If it is absent, we can assume that the starting point of the model is determined incorrectly.

A drop in the histogram by 30-50% relative to the local extremum indicates the end of the third wave and the beginning of the formation of the second correctional segment. Divergence also indicates the completion of the formation of the fifth wave - the rise/fall of the price chart is accompanied by a decrease/increase in the bars.

According to the first trading rule, first you need to wait for confirmation of the final crossing of the zero level. If the trend is upward, the indicator histogram is displayed above the middle level, if it is downward, below the middle level. The position is entered after the first divergence. A rising price and a falling oscillator indicate a sale, and a reverse divergence indicates a purchase. You can enter after the corrective movement has gone down/rise by about a third relative to the first impulse wave. Stop loss is usually placed at the extreme level and the trade is closed immediately after the formation of a new divergence.

Elliott Wave Prophet and Watl

The Wave Prophet indicator is quite popular among traders who use Elliott waves. With its help, you can not only see completed movements, but also predict the future direction of the price. The wave model on the chart is built automatically. If the trader believes that initial conditions defined by the system erroneously, he can always set them himself.

Watl is a convenient indicator that not only visually displays wave patterns, but also draws trend lines. The user can see the trends of different timeframes and forecast the future trend. As mentioned earlier, the optimal indicator for implementing Elliott’s theory has not yet been invented. The listed tools can be considered the most effective at the moment, but they are still far from perfect. However, this in no way detracts from their advantages and benefits for traders.

Criticism of Elliott Wave Analysis

Elliott waves are often criticized. Many opponents of this method believe that there is little practical benefit from it, since it is quite subjective. Moreover, there are opinions from actually practicing traders that this type of market forecasting is more likely to cause losses than profits.

What exactly do critics of wave analysis pay attention to?

First of all, they note that price movements cannot be predicted using such a framework. The price may deviate significantly from the drawn waves. In addition, there is a subjective factor here. After all, waves, like other types graphic models can be seen literally in any formation, if desired.

Some critics note that wave analysis is a method with a lot of nuances that are not clear to most traders. For example, it is not always possible to determine in the trading process where the waves begin and where they end.

Critics also point out that the best Elliott waves can only be identified on historical charts. As for working with this theory in practice, it is almost impossible due to a large number of factors.

Video about moving and corrective Elliott waves

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Wave analysis of the Forex market is the prerogative of confident and knowledgeable currency exchange traders.

Unfortunately, more and more novice traders use other people’s mistakes and do not want to do them themselves, relying on private traders who maintain their blogs on the Internet.

In trading on foreign exchange market It is very important for every trader to be able to correctly identify market fluctuations. This is a sign of a successful and experienced trader. To do this, you can use wave analysis of the Forex market.

The history of the Elliott wave theory

Elliott wave theory was developed by Ralph Nelson Elliott in the 1920s. He discovered that market behavior previously thought to be chaotic was actually cyclical.

He also determined that such market cycles were the result of trader reactions to external events, which can also be called crowd psychology. Elliott noticed that the ups and downs of crowd behavior always resulted in the same repeating patterns, which he later called “waves.”

Market forecasts with wave analysis

Elliott made detailed market forecasts based on the unique characteristics he discovered in wave patterns. An impulsive wave that moves in the same direction as the dominant trend always shows five waves in the pattern.

On a more detailed chart, within each impulsive wave you can find five component waves. These waves are considered different stages in the Elliott Wave Principle.

On Forex market, as on others financial markets, traders know that “every action becomes a source of positive and negative reaction,” just as a price swing up or down must be followed by an opposite swing. Price fluctuations are divided into trends and corrections or sideways fluctuations. Trends reflect the main directions of price movements, while adjustments fluctuate against the trend. Elliott called these impulse and corrective waves.

Forex Wave Analysis Theory Patterns

The theory of wave analysis of the Forex market is interpreted as follows on five patterns:

1. Every hesitation has its consequences.
2. Five waves move in the direction of the dominant trend, which is also followed by three corrective waves.
3. The movement of these waves is called a 5-3 wave and completes the cycle.
4. Each previous 5-3 wave oscillation becomes a component of the next higher 5-3 wave oscillation.
5. The basic 5-3 wave pattern remains stable, although the time span of each pattern may change.

In order for a trader to use wave analysis of the Forex market in everyday trading, he needs to learn to identify the main wave and then buy a long position, which he will later sell, or take a short position when the pattern ends and its restart is inevitable.

The mathematical basis for using wave analysis of the Forex market is provided by Fibonacci numbers. They play an important role in the design and creation of the complete market cycle, which is described using Elliott waves. Each cycle that Elliott identified consists of ranges in which the waves move, and the ranges are determined by the Fibonacci sequence of numbers.

Probably all traders have heard at least a little about wave analysis. Waves attract traders because they allow them to evaluate the overall picture without focusing on minor local price fluctuations. On the other hand, to become a real wave-maker you need to spend more than a year or two, and even under this condition there are no guarantees that you will succeed, this scares off many.

More than a dozen books have been written on wave analysis, where the authors, on several hundred pages, describe in detail the types of waves, the order of marking, etc. It is clear that it is impossible to do the same within the framework of one article, so we will limit ourselves to the most basic ones - just so that you though Imagine what you will have to face. If you get interested, you can always educate yourself and delve deeper into the mysterious world of waves.

A little history of the origins of wave analysis

Ralph Nelson Elliott thought that the processes occurring in the markets are similar to the waves in the 30s of the last century. And indeed, if you zoom out, you can see “waves” on almost any chart; the price first sharply rushes in one direction, then a slight pullback follows.

This is how the idea of ​​wave market analysis was born in his head. Of course, he did not mark by eye; it was based on the relationships between different waves. Fibo levels also help a lot when marking; with their help it is much more convenient to assess the relationship between extremes. In total, Elliott identified 13 different types of waves (differing in both amplitude and duration of formation), which were repeated in almost all markets.

If we try to very briefly describe the idea put forward by Elliott, then a trend movement consists of 5 waves, and a correctional movement consists of 3. Moreover, during a trend movement, 3 waves are directed in the direction of the trend, and 2 are corrective. The main movement occurs on the 3rd wave.

The most interesting thing is that these waves can be found on almost any time frame. 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 identify 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 their formation. And while other trading participants are frantically rushing from one extreme to another, you will be calm as a boa constrictor and just wait for the ideal point to enter the market

Skeptics have several simply reinforced concrete arguments:

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

In history, everything looks just great, the correction and driving waves look in place, and the beginner has a burning desire to quickly start learning. Remember that after drawing up the markings, the position of the waves is constantly adjusted, so do not think that the formations that you see in the history were built immediately in this position, most likely the adjustment was made after the fact;

Wave forecasters often place a stop at the base of the first wave in their forecast. But where is the confidence 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 schedule, they simply ignore the possibility of the situation developing in a direction unfavorable for us. One-sided thinking is obvious; other methods of analysis consider all options for price movement;

And the most important thing is subjectivity in construction. There are many variations of waves, but it is very difficult to remember them all, and don’t expect that situations will always develop in the market that are ideally suited to the patterns described in books. It just doesn’t happen that way, as a result, chart marking turns into real torture, the trader has a bunch of different types of waves on his hands and tries to figure out which one is best suited in in this case. The situation gets worse after he gets acquainted with the markings of some analyst and is horrified to see that it does not coincide with 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 your week or month. The maximum that can be achieved is to have an idea of ​​the possible behavior of the market in the medium and long term.

If all this doesn’t scare you off, let’s move on to specifics and look at the basics of wave theory.

Basic principles of wave theory

As was said at the beginning of the article, there will be no delving into the wilds, otherwise we would have to release another multi-volume book on Elliott waves. Let's limit ourselves to the most basic.

Structure of the main movement

As we said, the main movement includes 5 waves, 3 of which are directed along the trend, and 2 are correctional (at their completion it is convenient to enter the market). After wave No. 5, a larger-scale correction begins for the entire movement 1-5; this rollback also occurs according to a wave pattern - a total of 3 waves, usually designated by the 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 marking was carried out on a randomly selected section of history, hence the accuracy. The same screenshot shows that wave No. 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 for the fifth wave to even be shorter than the first.

Now let's look at the relationships 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 relationships and if the waves correspond to them, then the value of the marking increases. So:

It is also useful to know what happens 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 trend change. That is, the price manages to break through very strong resistance/support. After the breakthrough, nothing can hold it back; the stops of those who did not guess the direction of movement in the market are lost;

The second wave is the result of profit taking by those traders who managed to recognize the reversal. Against the background of the recent breakthrough of strong resistance - support, most trading participants are confident that the movement will continue in the direction of the first wave, but everyone is waiting for convenient entry points. Taking profit also gives a small smooth corrective movement. If we compare the duration and amplitude of the waves, then in terms of the duration of formation the second wave may 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 waiting traders, they enter the market in the hope that the movement will continue;

This is how the third wave begins - this is exactly what followers of the wave theory of the market exist for. If you manage to catch it, then a good profit is guaranteed; in this case, you need to place a TP at least on the Fibonacci extension of 1.618 from the first wave;

The 4th wave is the most difficult to identify. The movement here may well occur in a horizontal channel. As such, there is no pronounced correction, the price simply takes a time out before rewriting the last extreme (the one that was set in point 3);

Wave 5 – a census of the extremum occurs, divergences are often observed on various indicators. An additional signal: towards the end of the fifth wave, volumes are growing sharply.

Structure of the corrective movement

When talking about a corrective movement, we mean a three-wave movement that occurs immediately after the main five-wave movement. For example, let's take another cycle in which 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. Among the shortcomings, I would highlight only:

The size of the fourth wave is too small, and in general, the fact that it formed over literally 2 candles is not very good;

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

To assess the quality of correction movement, the following ratios can be used:

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 – located at the levels of 38.2%, 50.0% of correctional wave A;

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

The logic of what is happening is as follows:

Corrective wave A breaks through the support built at points 2-4. This causes a violent reaction from trading participants, which leads to a very sharp movement; usually the correction takes place much more calmly 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 had 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 corrections. It also happened in this example. The support had its effect, but trading participants did not receive confidence that the fall had slowed down, so the rebound was small and sluggish;

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

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

It was mentioned in passing earlier that waves can be found at any time intervals. If we develop this idea, then each of the large waves can be divided into several smaller ones and this process can be repeated, although not indefinitely, but precisely down to the smallest time intervals.

Let's analyze the 5th wave movement, in it, as we already figured out earlier, 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 correctional one – of 3. That is, in our case, 3 medium trend waves will give 15 small waves, and 2 corrective waves will give 6 more small corrective waves. In total we have 21 waves, that is, the standard movement presented in the screenshot above can be represented in the form of 21 small waves. On D1 they are poorly visible, but on a smaller time frame they are visible quite well.

All this looks great in the examples when you mark up the history. But when there is no chart on the right side and the trader needs to place the probable end points of the waves, the hardest part begins. Marking a story is the same as looking at the answer instead of deciding. Judge for yourself - there is movement in front of us, we know how many waves there should be in it, hence the beautiful markings.

If you go down one more time frame, you will be able to identify even smaller waves. In this case, there will no longer be 21, but 89. If, on the contrary, we try to enlarge the time interval, that is, switch to the weekly timeframe, then instead of 5 waves we will see only 2.

As for the Fibonacci sequence and its influence on price behavior, this refers to the duration of the formation of a particular wave. Let me remind you of 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, over 9 days, then it will most likely end on the 13th day; if this does not happen, then the next probable date is 21 days. Such reasoning seems a little far-fetched, but sometimes it works.

The main rules to remember when marking

There are several simply reinforced concrete rules that are never violated under any circumstances. Or rather, they can be violated, only in this case it is impossible to talk about a formed 5-wave structure; adjustments will have to be made. The rules are as follows:

The second wave never falls 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 marking incorrectly and item 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.

Automatic wave analysis – is it worth using indicators to mark a 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 even if it is too difficult to implement all the subtleties in the form of indicators, the main constructions can be automated. 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 differs from other similar algorithms in that it does not mark the graph on history, but performs part of the construction on the nearest segment of the graph and shows with lines how it can develop in the future. A kind of oracle.

The downside is that the trader will have to determine for himself exactly how many waves have been formed at the moment. This is critically important for more or less adequate marking. It is more convenient to explain this with a specific example.

Let's assume that at the moment there are 3 waves formed on the chart (as the trader thinks). In this case, he sets parameter 3 in the indicator settings and gets the following picture. By the way, the “jamb” of the indicator is immediately visible - it built wave No. 2 below the bottom of the first wave, and this is incorrect.

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

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

This indicator cannot be called bad, it’s just one of those that needs to be used wisely. You can’t just add it to the chart and immediately get entry points and ideal markings. You need to have at least a basic understanding of the waves and the relationships between them, and then you can get reliable markings. Another advantage of this algorithm is that the text window displays information on the waves and the relationships between them, which saves a lot of manual labor.

Wave indicator X Wave Elliott

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

Zigzag marks on the chart important movements, building a broken line;

The X Wave Elliott indicator itself simply indicates with numbers those extreme points that, in its opinion, are suitable for the role of waves.

There are also a number of shortcomings here. for example, it is impossible to see the markings on the history; in addition, the indicator does not even try to predict price behavior, it simply marks certain peaks with numbers. Another drawback is that the main marking rules are not followed (that the bottom 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 market analysis (ExtDepth item in the settings). So if you decide to use it in trading, then be prepared for a long search of settings until you get something worthwhile.

Wolfe Wave Indicator

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

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

An example of markup is shown in the screenshot. Entering at point 5 would allow you to close the deal with a profit.

Download a selection of Wolfe Wave indicators

FX5_NeelyElliotWave – multi-timeframe marking

The algorithm used in the indicator incorporates the relationships between waves outlined 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 an interweaving of lines of different colors and thicknesses, at first glance a useless jumble. In fact, the lines display a picture that occurs on several time intervals at once (you can disable this in the indicator settings).

Unfortunately, the indicator will not do all the markings for you, so the trader will have to set up 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 study and gave 100% results, then the market as such would no longer exist. Everyone would suddenly begin to trade 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 will not get rid of subjectivity when marking a graph. One could put up with everything else, but this is its peculiarity, 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 you plunge into the world of waves. This activity is very exciting, perhaps wave analysis will become something like your hobby, but no one can guarantee that with its help you will trade profitably. Evil tongues say that even seasoned wave traders are not able to trade profits based only on wave analysis.

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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).

On this site, first of all, it is given wave analysis forex and traffic forecasts currency pairs based on this analysis.

Also presented commodity market, this , and is presented .

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

But in order to use wave analytics correctly, you must first learn how to read the wave markings. In this article I will tell you how to do this.

Moreover, you may not be proficient in wave analysis itself, since mastering it is a rather long and labor-intensive process, but in order to competently use the works of a person who is fluent in wave analysis, you must learn to at least correctly read wave analytics, and therefore wave markings.

1.The wave principle in a nutshell.

Before we start talking about how to read wave markings, I will say 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, which are constantly repeated (of which, conditionally, five are along the trend and three are against the trend).

Fig.1. 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 correctional waves 2*/4*
Correction to a given impulse of wave 1, this is wave 2 and it consists of a standard basic wave model of three waves a*/b*/c*

Moving waves divide:
1) to a standard impulse (Fig. 2), which can be any of the driving waves and the main characteristic for these waves is the absence of 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 final diagonal structure (for Neely - 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 triplets (abc), wave levels 1- 3′ and 4-3′ in the ZDS also intersect, see Fig. 4. However, it should be noted here that it has long been proven by practice that in fact the fifth wave and wave C can not only be like a ZDS, but also take the form of a 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 varied than impulse ones, but there are two basic models of corrective waves on which all other types of corrections are based (Fig. 5).
These are zigzag and flat (flat):

Fig.5.

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

Nesting of waves

I would also like to say something about the nesting of waves. The nesting of waves (or in other words the fractality of waves, although I like nesting better because it more accurately corresponds to the definition stated below) is the complete correspondence of the markings of a larger timeframe to a smaller timeframe and vice versa. Those. wave marking, like a Russian nesting doll, should be invested from a smaller timeframe to a larger timeframe and unfold just as correctly.

For example, if you mark an impulse on h4, then on h1 this market place should be decomposed into an impulse, and on M15 this market place 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 it means that we either need to revise the marking and look for other options, or accept this as an anomalous assumption and still consider this place to be an impulse, if we say additional tools such as correlation or fundamental insist on the continuation of the trend.

But it’s true that such situations do not occur so often, but they are also not rare enough that they should always be ignored and not played out.

Wave order

Here, for a clearer understanding of the wave principle, we must also say something about the order of the waves. The order of the waves is based on the nesting, which was described above, reflected in the markup, which is shown in Fig. 1 and in the wave notation (about it we'll talk further).

As can be seen from the figure, each strand of waves is assigned its own label, i.e. the naked eye can see that the wave labeled 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 outlines only the basic principles on which wave analysis is based. Wave analysis itself is much more complicated and you can start studying it from our website page

There you can find material for beginners, or sign up for a Great Training Webinar for those who are already familiar with wave analysis.

2. Reading wave markings.

There is no one generally accepted marking in wave analysis. Prechter took root in our country at the suggestion of D. Vozny. At one time I went through a lot of notations before I settled on the one I use now. Main reason– the marking should be compact and not burden the graph, and since my method of analysis is based on the fact that I simultaneously consider and show several options for the development of events on one graph, then a lot of numbers and letters accumulate in one place on the graph.

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

If I set priorities, I usually indicate this in the description that goes under the schedule. But I still left the red and blue marks on the red version as a tribute to tradition.

Green option— wave a^ of the supposed plane (flat) in wave 4″ has completed and wave b^ is developing.
Gray option— wave a^ of the supposed triangle in wave 4″ has completed and wave b^ of this triangle is developing.

What does the multivariance of wave analysis with the display of several options on one chart give and how to use these options, I explain 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 all you have to do is study them and you’ll be on your way. But it is stated in the books general theory, and the practical part is shown in best case scenario schematically and, as a rule, looks somewhat contrived, i.e. she is far from practice.

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