Wave analysis is so complex that only a few professional Forex traders can master it perfectly. But its BASICS must be known to every successful player in the market.
Why do we need the basics of wave analysis? Then, to understand and see:
Let's look at the CAD/JPY (H4) chart from the point of view of the wave analysis of the MF (modification of VA Elliott), connected with other MF tools.
Rice. 1. Price movement on the example of the CAD/JPY currency pair
Comments MasterForex-V:
Once again carefully consider and then analyze the picture from the closed forum of the MasterForex-V Academy. We are well aware that this is very, very difficult. But you have the opportunity right now 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 their studies shows, on average, from 250 to 500% per year in foreign currency and on break-even, win-win vip accounts, which allow combining the possibilities:
- Earnings of the trader himself (100-200% per year).
- 150% NordFx bonus participating in the drawdown (with a 3K deposit, you are credited 7.5K to your account with the right to withdraw profits above this amount), or 100% 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).
- 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 it be skipped? Those who answered "yes" will read further:
- In this chapter - about the common features and differences between technical and wave analysis (the same models of reversal and continuation of the trend through the eyes of the "wave").
- In the next chapter - summary books by Frost and R. Prechter, Balan, Vozny, etc.).
- In the third chapter -.
What gives the trader wave analysis and its difference from classical technical analysis
Wave analysis:
- Helps to find the beginning of a trend, considering the movement of currency pairs not from the point of view of reversal patterns and trend continuation, 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 the classical technical analysis of trading (on the left in Fig. 2) and the same trend reversal pattern from the point of view of wave analysis. It turns out that the downward fall was only a correction (rollback). Therefore, at the end of wave C, you need to open a buy deal.
This wave counting helps to understand why there are many complaints about the “head and shoulders” pattern. As soon as a trader opens a sell order, the market goes… in the opposite direction.
- It helps to CONSCIOUSLY take profit by determining in real time WHERE and on WHAT wave you open an order in the market. Wave counting more accurately suggests market entry points than " " or any other method of technical analysis.
Rice. 3. Selection of points for entering the market according to wave analysis
- Shows impulse targets (138-162% and above) in trend and correction (38-76%).
Rice. 4. Targets of impulse 3rd and 5th waves of the trend
Rice. 5. Correction targets - 38-62%, or a maximum of 76%
In this way, Forex trader understands what levels the price tends to, where and why it is necessary to open and close deals.
- Helps to easily find a flat (waves a-b-c in both directions).
Rice. 6. The market is in a state of flat
None of the traders like flat. Wave analysis helps to determine it online when CORRECTION waves go both up and down (a-c-c). This means that the OLD TF is undergoing a correction, after which a strong and powerful impulse will begin.
It is better to wait out this correction, being out of the market, which you will always be prompted at the closed forum of the MF Academy.
- It makes it possible to IDENTIFY any trend continuation pattern (flag, pennant, etc.) as corrective waves.
Rice. 7. The pattern of trend continuation in the form of corrective waves
Allows you to understand where to put stops (locks, locks). Wave analysis provides a clear answer to this important question. For example, when the price is under the bottom of the first wave (the trend is canceled) or under the bottom of the wave of the older TF.
Rice. 8. End of trend
From the foregoing, we can conclude: without knowing the BASICS of wave analysis, your profit on Forex can only be random.
What a real-time trend looks like (from MasterForex-V Academy materials)
Pay attention to the clear signs of a bullish trend(Fig. 9):
- 1st bullish wave(purple color) has a 5-subwave structure. This is a sign of momentum and a POSSIBLE change in trend from bearish to ;
- 2nd wave(yellow color) has a CORRECTIONAL a-to-c structure and does not break the bottom of a new bullish wave. When its maximum is broken, the 3rd wave, beloved by all traders, begins;
- 3rd wave (grey colour), which also has 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 by wave analysis
The AO or MACD for the 1st wave (purple background) confirms the start of a bullish trend. The following conditions are required here:
- 1st sub-wave: the histogram enters above 0 on a bullish trend;
- 3rd subwave: AO histogram above the 1st wave;
- 5th sub-wave: divergence. The histogram is below the top of the 3rd wave (possible entry under 0).
How Bill Williams increased his trading deposit from $10,000 to $198,977 using wave analysis
Bill Williams in his book "Trading Chaos" gave perhaps the most powerful impetus to popularize the 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 made a detailed money management plan (money management), explaining the logic of opening and closing deals (see Fig. 11).
Rice. 11. Money management according to the MasterForex-V Academy system
For those who are already convinced of the need to learn the basics of wave analysis, we suggest that you familiarize yourself with the special literature on this topic and visit the following Internet resources:
- Free illustrated magazine of traders "Market Leader".
For a deeper study of the Fundamentals of Wave Analysis, we recommend reading the following books:
- A. Frost and R. Prechter. The Complete Elliott Wave Course
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. Mastery of 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 based on 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 the mechanical trading system.
- D. Murphy. Technical analysis of futures markets.
- A. Cherepkov. Theory of Long Waves N. D. Kondratiev.
- E. Nyman. Small encyclopedia of a trader.
- A. Kiyanitsa, L. Bratukhin (ed.). Fibonacci levels. Where the money is.
- M. Chekulaev. Fractals.
- V. Safonov. Practical use 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 provided truly the most "Complete Course on the Elliott Wave Principle". This is the main fundamental work on the wave analysis of all areas of trading (commodity and commodity markets, stocks, futures, Forex).
- The books by D. Vozny (Prechter's translator into Russian) and Balan are an applied application of wave analysis to the Forex market.
- Bill Wilms' book "Trading Chaos" is a more popular publication for a wide range of potential traders. It gives 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 of our next chapter: Here you will find a brief summary of the mentioned works.
Using wave analysis in the market, a trader can most accurately predict the price behavior in a particular time period. This type Forex market analysis can become one of the most important indicators of success and an effective tool for a professional trader.
How to use wave analysis?
According to the Elliott wave theory, the price movement of any currency pair can be displayed on the chart in the form of waves. The waves are divided into three impulse waves, which are directed towards the main trend, and two corrective waves, which are directed against the trend. These waves are indicated by the numbers 1, 2, 3, 4, 5. When the trend ends its active development, the price movement correction begins, which is displayed on the chart as three waves. Two of them are driving and one is corrective. These waves are designated A, B and C.
The essence of the wave analysis is that the price movement is natural, and the same pattern of the price "path" is constantly repeated. Using wave analysis in the Forex market, it is possible to calculate the price behavior at a particular stage of the trend and, taking one of the waves for profit, close the deal on time, making a profit. In order to reduce the risks of losses in the Forex market and correctly set the stop loss value, you should pay attention to the wavelength. As a rule, the longer the impulse waves, the longer the corrective ones will be.
The main difficulty in applying Elliot wave analysis is to correctly determine the type of wave. In order to correctly predict the price movement, it is necessary to accurately identify which waves are impulsive and which are corrective. As a rule, corrective waves are the most difficult to determine. Elliot Wave Theory is applicable to any traded financial asset– from stocks and bonds to the EUR/USD currency pair.
The main idea of the wave analysis of the Forex market is that the price movement in any market is characterized by a wave-like nature, which allows predicting the development of the situation in the future. Forex wave analysis from the world's leading brokers, provided to the client, helps to calculate preliminary variations in the continuation of the price movement, the minimum and approximate potential of the available options, and knowing the signs of their confirmation - use any of them to make a profit, clearly realizing which wave is taken to make a profit, and lead this particular wave until the close of his trading operation. There are two types of waves: impulse and corrective, as the price movement is divided into two wave groups:
- impulses- waves moving the price either up or down (marked with numbers)
- Corrections- waves that serve for an “adequate” response to an impulse (marked with letters)
Identification of a wave when it is plotted on a price chart
The wave analysis of the Forex market highlights several ways to determine the wave when it is plotted on the chart: at the close of the price, at the maximum price, at the minimum, or by its average value. For novice traders who have just started using the wave analysis of the Forex market, the best way to plot the price on the chart is to connect the maximum price with the minimum, and vice versa, the minimum with the maximum. In this case, the wave designation becomes visible, in addition to everything, the trader quickly masters the skills of charting.
To reduce the risk of losses in Forex wave analysis and to correctly calculate the size of the stop loss, special attention should be paid to the wavelength. Experts of the wave analysis of the Forex market confirm that the longer the impulse waves, the longer, respectively, the corrective ones.
Considering technical analysis, one of the most popular methods in trading can be distinguished - wave analysis. Wave analysis is based on charts on which price movements occur, marked by analysts into main waves and sub-waves. Based on these markings, forecasts are made about the upcoming price movement.
Just imagine how simple and easy it would be to trade on the Forex market, if the price constantly moves according to the five-wave principle, even a schoolboy could earn.
But this does not happen, the lion's share of traders merge their trading account, but what is the reason?
Is it really that hard to master the five wave principle?
The 5 wave model is the basis, but the classics of this analysis did not become limited only to it. Classic wave analysis , contains a large database of impulses, corrections, as well as their types and subspecies.
For example: truncations, extensions, diagonal and leading triangles, and the like. Corrections: horizontal corrections and triangles, zigzags, triples and double threes. Figures of reversal and continuation of the market trend and so on.
Classical wave analysis, in fact, is a theory that has an extremely superficial relationship to practical application.
Directly in trading, figures will be visible only when, when the trend forms them on history. During the formation of price models, you can get confused several times, the price can resemble two or three patterns at once.
In the classical wave analysis, there is a large set of different patterns and options, which in most cases will justify the direction of the trend movement, in any direction. In order to take the movement into profit, you need criteria for confirming such an analysis method, even before your method is implemented, and not those patterns that even work on history in 50 percent of cases.
It happens that either the model ceases to be a reversal and relying on it, you will suffer a loss. The figures are clearly visible only from history. Classical analysis is more suitable for the description that analysts of the Forex currency exchange use.
Hello, dear Readers of the site "site"! From this review, you will learn what wave analysis of the Forex market is, what are its main features and what indicators of wave analysis are currently used by traders.
Cons of wave analysis
Wave theory, like others, cannot be perfect. This also applies to its overall performance. Elliott wave theory can give a trader a completely normal forecast of price behavior in the market, that is, it is quite effective. But for a full and competent analysis and more accurate forecast you, in addition to the Elliot wave indicator, will need to use other important factors.
So, in order to see a trend change in the first wave and gain time to conclude successful financial transactions, you need to be able to do fundamental analysis. This will require an analytical mind to correctly interpret the news in the market.
Making a complete prediction of behavior financial market and understanding are all made possible by wave analysis. True, in practice, the use of the wave theory is quite difficult, since each trader has his own motives for behavior. In this regard, it is extremely difficult to predict how much the prediction made coincides with reality.
In addition, it is worth remembering that the end result of trading may well not coincide with the thinking of many thousands of traders, as it will outweigh the large trading volumes of institutional traders. These merchants have a completely different mindset, as they mostly work not alone, but in teams.
Modern Wave Analysis Indicators
Since Elliot's theory came to the liking of many analysts and traders who were tired of wasting their time on automating the analysis, additional tools were invented and developed for comfortable trading for traders.In trading on the currency exchange, wave analysis indicators have been used for a long time. They are easy to read by traders and based on their signals, you can simply make trading decisions about opening deals.
The elimination of the so-called subjectivism is the main task of all indicators that can easily track the wave. When compiling any wave count, several traders may well compose it in very different ways. This is well known to everyone who has at least once made an attempt to apply the theory of waves. In this regard, in order to create a high-quality tool that can determine waves based on a set important factors from the Fibonacci grid to the main principles of wave theory, quite a lot of time has been spent and not in vain.
1. Wolf Wave (Wolf waves)
This indicator is based on an indicator called Zig Zag and looks for Wolfe Waves. The wave analysis indicator Wolf Wave looks for the necessary wave that formed from the extremum and completed the formation or breaking through the previous cycle.
2. Oscillator called Elliott Wave Trend
Elimination of unnecessary noise and significant simplification of the price chart — main feature this tool. Elliott Wave Trend makes identifying key peaks much easier.
3. Elliott Wave AdvGet Oscillator
This indicator determines the extremes that are characteristic of the third wave. The Elliott Wave AdvGet indicator belongs to the class of so-called oscillators and easily determines the necessary extremes.
The above indicators are available at and are freely available for download on the Internet. In general, there are many more indicators for wave analysis, but the most used by traders today have been described above.
Conclusion
This is where our review of what wave analysis of the Forex market is and what wave analysis indicators traders use in their trading activities ends, we wish you success and profitable transactions in the financial markets!
