Forex trading has proved to be a passive source of income for many households in United States. However, you need to know the trick of the trade to succeed in FX market. Undoubtedly, FX market is the largest financial market and the trading volume far exceeds the volume of stocks traded in several stock exchanges combined together. The chances of earning profits, leverage, 24 hours trading, high liquidity makes forex market one of the markets investors flock to make investments in. More and more investors are making currency trading as part of their investment portfolio.
The success of forex trading depends on how accurately you can study or identify the trading pattern. A lot depends on the timing and it is possible only for experienced traders to identify the same. In this regard, the Elliot Wave theory plays a vital role in the predicting the market movement and trends in the forex market.
What is the Elliot Wave theory in Forex trading?
The Elliot Wave theory was developed by Ralph Nelson Elliot in the year 1920. The direction in which the market is moving and patterns followed are predicted by the Elliot Wave theory.
According to the theory, the forex market moves in 5-3 cycle. It first moves in series of 5 swings upwards followed by 3 swings back ward or back down. This concept appears to be very simple but the main aspect that needs to be considered is the timing. It is difficult to predict the exact time when the market will be in the position of 5 swings upwards and 3 swings back down. The cycle goes on incessantly. 5 waves move in one direction followed by 3 “corrective” swings back down. These waves are again composed of several other waves. And there are subsets as well as supersets of these waves again.
If you are aware of the starting point of the cycle and can correctly interpret the direction of the market, it can be of immense help to you as you can predict the movement of the FX market and it would also help you take the correct decision as far as investing your hard earned cash is concerned.
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