The stock market is one of the most unpredictable things that there is. You cannot give a hundred percent surety on what someone can expect or how it will behave over the next couple of days. However, people have been able to find certain patterns that could give out a near unity probability of a fashion that the market is seeing. One amongst those theories is called the elliot wave theory. It talks about how those putting in their money can be affected by alien factors or the behavioural pattern of people around them, working in the same field.
Understanding it deeply
The theory believes that a large section of the investors thinks in a particular pattern and those patterns culminate into a downward or an upward movement in the market which was called an elliot wave. Just like a sine wave in mathematics, the market, too, sees a similar structuring and because they occur over and over again, the theory took an approach to predict the movement by taking that into account.
The theory, unlike any other including the one which it resembles, dissects the intricacies of the market to give out a detailed explanation of what you should be expecting. It breaks down the wave into finer units and takes into account price action.
As mentioned, elliot wave theory is extremely thorough in its approach and therefore, needs stages to understand and analyse the trend through the tool. It believes in the virtue of action-reaction wherein there will be a reaction to every action undertaken in the market.
It gives out a concept of the corrective wave by considering the aforementioned concept and then through the graphical methods explain that in the pathway of the central fashion, you will see five waves moving beyond which you will see three corrective waves. This was defined as the 5-3 movement. It eventually becomes a subunit of the upper movement. It even divides the formation of wave based on their size. A person needs to understand the central wave movement first and then decide if they would want to sell or invest. They can even see if a commodity might lose out its importance.
The elliott wave analysis is complex but still sees a number of attentive stock-marketeers learning it with utmost passion. The first publication pertaining to it was even right in determining the two major financial changes in the year 1970 and 1987. This added to the weight of how good the theory was and how it can be used for people in the field of the stock market to get as close to the result as possible. People, therefore, have been using it extensively to ensure that they can stay above the sequencing of the trades and stocks to make profits.
The theory has established itself as one of the main assessment theories of the market. For someone who has been in the world of stock market, it is a tool that can really help the person only if they are ready to understand it with genuine dedication.