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The Elliott Wave PrincipleIn the 1930s, Ralph Nelson Elliott, a corporate accountant by profession, studied price movements in the financial markets and observed that certain patterns repeat themselves. He offered proof of his discovery by making astonishingly accurate stock market forecasts. What appears random and unrelated, Elliott said, will actually trace out a recognizable pattern once you learn what to look for. Elliott called his discovery "The Elliott Wave Principle," and its implications were huge. He had identified the common link that drives the trends in human affairs, from financial markets to fashion, from politics to popular culture.Robert Prechter, Jr., president of Elliott Wave International, resurrected the Wave Principle from near obscurity in 1976 when he discovered the complete body of R.N. Elliott's work in the New York Library. Robert Prechter, Jr. and A.J. Frost published Elliott Wave Principle in 1978. The book received enthusiastic reviews and became a Wall Street bestseller. In Elliott Wave Principle, Prechter and Frost's forecast called for a roaring bull market in the 1980s, to be followed by a record bear market. Needless to say, knowledge of the Wave Principle among private and professional investors grew dramatically in the 1980s. When investors and traders first discover the Elliott Wave Principle, there are several reactions: * Disbelief – that markets are patterned and largely predictable by technical analysis alone * Joyous “irrational exuberance” – at having found a “crystal ball” to foretell the future * And finally the correct, and useful response – “Wow, here is a valuable new tool I should learn to use.” Just like any system or structure found in nature, the closer you look at wave patterns, the more structured complexity you see. It is structured, because nature’s patterns build on themselves, creating similar forms at progressively larger sizes. You can see these fractal patterns in botany, geography, physiology, and the things humans create, like roads, residential subdivisions… and – as recent discoveries have confirmed – in market prices. Natural systems, including Elliott wave patterns in market charts, “grow” through time, and their forms are defined by interruptions to that growth. Here's what is meant by that. When your hands formed in the womb, they first looked like round paddles growing equally in all directions. Then, in the places between your fingers, cells ceased growing or died, and growth was directed to the five digits. This structured progress and regress is essential to all forms of growth. That this “punctuated growth” appears in market data is only natural – as Robert Prechter, Jr., the world's foremost Elliott wave expert and president of Elliott Wave International, says, “Everything that thrives must have setbacks.”
The first step in Elliott wave analysis is identifying patterns in market prices. At their core, wave patterns are simple; there are only two of them: “impulse waves,” and “corrective waves.”Impulse waves are composed of five sub-waves and move in the same direction as the trend of the next larger size (labeled as 1, 2, 3, 4, 5). Impulse waves are called so because they powerfully impel the market. A corrective wave follows, composed of three sub-waves, and it moves against the trend of the next larger size (labeled as a, b, c). Corrective waves accomplish only a partial retracement, or "correction," of the progress achieved by any preceding impulse wave. As the figure to the right shows, one complete Elliott wave consists of eight waves and two phases: five-wave impulse phase, whose sub-waves are denoted by numbers, and the three-wave corrective phase, whose sub-waves are denoted by letters. What R.N. Elliott set out to describe using the Elliott Wave Principle was how the market actually behaves. There are a number of specific variations on the underlying theme, which Elliott meticulously described and illustrated. He also noted the important fact that each pattern has identifiable requirements as well as tendencies. From these observations, he was able to formulate numerous rules and guidelines for proper wave identification. A thorough knowledge of such details is necessary to understand what the markets can do, and at least as important, what it does not do. You have only just begun to learn the power and complexity of the Elliott Wave Principle. So, don't let your Elliott wave education end here. Join Elliott Wave International's free Club EWI and access the Basic Tutorial: 10 lessons on The Elliott Wave Principle and learn how to use this valuable tool in your own trading and investing. Free Elliott Wave ResourcesLearn to think independently by downloading the Independent Investor eBook, FREE!Do you, like most people, believe that the best way to invest is to follow the news about Iraq, oil prices, or the Fed's next move? If so, prepare to be challenged with the Independent Investor eBook.We promise to show you a whole new way of thinking about investing. We have handpicked 5 of the most groundbreaking reports we have ever published in the 27 year history of Elliott Wave International and compiled them into this 75-page eBook. The Independent Investor eBook will show you the simple beauty of the true relationships among financial markets, the economy, and human psychology. The hard facts and price charts in this eBook challenge conventional beliefs and offer explanations for market behaviors that have always been considered "inexplicable." Normally, you’d pay over $100 for the reports contained in the Independent Investor eBook, but today you can download them free. Don't get caught running with the herd – learn to think independently by downloading the Independent Investor eBook FREE! Elliott Wave TutorialElliott Wave International's tutorial is the most comprehensive introduction to the Elliott Wave Principle available in cyberspace. All ten lessons have been adapted from Prechter and Frosts Wall Street bestseller, Elliott Wave Principle - Key to Market Behavior. To start your Elliott wave education now, click here.Elliott Wave Video Crash CourseVideo 1: Why Use the Wave Principle* This video uses real headlines, actual events and charts to provide a comprehensive look at what the financial media say drives the markets and why their “fundamentals” are usually wrong. And more importantly, you’ll learn why the Wave Principle is your best tool for forecasting the markets. Video 2: What is the Wave Principle * This video gives you a brief biography of Ralph Nelson Elliott, the father of the Wave Principle. But it also explains in vivid detail the recurring “motive” and “corrective” patterns Elliott discovered in the DJIA in 1938. Hands down, this is the best introduction to the Wave Principle we have ever created. Video 3: How to Trade the Wave Principle * This final video of the series goes past the history and serves up the meat and potatoes of the Wave Principle, sharing real charts and strategies for position management, such as entry, stop, target and risk/reward assessment. After watching this video, you’ll know the rules and guidelines and our favorite wave patterns for trading. How to Use Bar Patterns to Spot Trade SetupsIf you are a trader or are the least bit interested in trading, you’re most likely "chart-centric." A good chart is priceless if it helps to identify a great opportunity.But without the right education, you could be missing high-probability trade setups that should be staring you right in the face. That’s where our FREE report, How to Use Bar Patterns to Spot Trade Setups, can help. EWI Senior Analyst Jeffrey Kennedy shows you how bar patterns often introduce sizable moves in price. The five-page report includes 13 instructional charts and simple explanations that teach you how to spot specific bar pattern formations, including the Double Inside Day, the Arrow, and the Popgun. To read How to Use Bar Patterns to Spot Trade Setups now, click here. Learn How the Wave Principle Can Improve Your TradingLearn how the Elliott Wave Principle can improve your trading as well as how to make better use of protective stops by using the Wave Principle.This free report gives you a thorough insider's look at the very same methods Elliott Wave International's Senior Analyst Jeffrey Kennedy uses to identify high-probability trade setups. "Every trader, every analyst and every technician has favorite techniques to use when trading. But where traditional technical studies fall short, the Wave Principle kicks in to show high-probability price targets. Just as important, it can distinguish high-probability trade setups from the ones that traders should ignore." – Jeffrey Kennedy To read Learn How the Wave Principle Can Improve Your Trading now, click here. Tips From a Pro: How To Trade Forex With Elliott WaveFact: Ever since the Dollar Index – a measure of the dollar's strength against a basket of six other currencies – was created in 1973 has the greenback been as weak as it is today.Regardless of how you feel about this fact, one thing is for sure: The dollar is the current center of the global financial community's attention, and it will likely stay in the spotlight for a while. And that could be good for the forex market. Already the largest and most liquid market on the planet – with the daily volume ten times larger than the combined daily turnover on all of the world's stock exchanges – recent focus on the dollar is likely to attract even more currency speculators. And that means even more volume and liquidity – a nimble trader's paradise. Winning in forex is not easy. You need skill, discipline – and sometimes, just pure luck. You also need a method. After all, how can you expect to win unless you follow a strategy? You may have heard that Elliott wave analysis is something many forex traders use. It's true; wave analysis is not a crystal ball, but it helps you accomplish three crucial goals: Identify the trend, stay with it, and know when the trend is likely over. For you as a forex trader, meeting these three goals can mean a difference between a winning trade and a losing one. We at Elliott Wave International have many resources that can help you learn Elliott – but nothing helps you learn faster than watching a good teacher. And if you've been looking for such an opportunity, you’re in luck. Learn from a pro with these two free resources: FREE Video Lesson: How To Trade Forex With Elliott Wave * At its core, Elliott wave analysis is simple. Watch Jim explain why. Elliott Wave BooksThe Wave Theory, if used properly, can be a big advantage in your trading. Here are some books that are must reads. They are very thorough in explaining how to implement the wave theory into your trading.
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