Among various trading ideas and principles, very few are as popular as the Elliott Waves Theory. This theory is one of the most important and most influential theories in the world of binary options and there are many tools that are derived directly from it. Essentially, everything here is based on the presumption that the market will always go through the same cycles which can be broken down to waves. We will talk more about these waves in the following paragraphs, so if you’re still not familiar with this manner of trading, you won’t want to miss this. Sit down and set a few minutes of your time aside to expand your trading knowledge.
Elliott Waves Theory | Two types of waves
The Elliot Waves Theory is based around two main types of waves: impulsive waves which follow the main trend and corrective waves which move against a Binary Options Trend. An impulsive wave will always consist of five smaller waves and be followed by a corrective wave. That corrective wave, on the other hand, consists of three moves. The thing is that these two waves are fractal in nature, meaning that the same principle is always applied, no matter what the scale of your chart is. In other words, each cycle is a part of a bigger pattern and can be broken down into smaller ones by using the same principle – the 5:3 move. However, these are not all exact copies of each other, so read on to see what can change these patterns a bit.
Elliott Waves Theory | Time element varies
While the pattern upon which the Elliot Waves Theory is based always remains a constant, the element of Expiry Time is not so rigid. The span in which one of these patterns is completed can vary significantly and this is what can sometimes confuse traders. They simply lose track of the level on which they’re examining the graph or mix up higher and lower wave categories and come to the wrong conclusion. That is why it’s recommended to use the so called top-down analysis when using the Elliott Waves Theory. You simply start with a monthly chart and then gradually break things down as you go. Of course, you only move to a lower level at the point at which your analysis of the higher level ends. That’s why concentration is so important when using this theory.
Elliott Waves Theory | Conclusion
In the end, we can see that the Elliott Waves Theory is a very interesting principle based on two types of waves – impulsive ones and corrective ones. Still, you need to be focused when using it because it can be easy to get things mixed up while you’re analyzing your chart. Also, remember to take time into consideration too because different cycles may not last equally long. However, after some practice, we firmly believe you will get the hang of things and move on to other things we discuss in the educational articles on this website.