Let it be stated upfront that there is no perfect way to analyze and forecast financial markets. No crystal balls.
Yet, let's be just as quick to add that in Elliott Wave International's review of market analysis methods, none approach the utility of the Elliott wave model.
The reason for the Elliott wave model's usefulness is easily explained: Elliott waves are reflections of the repetitive patterns of investor psychology, which is the real driver of prices, not news or events.
And, what could be more useful to an investor than a method which helps to identify a financial market's trend -- especially before it gets underway? Well, mastering the Elliott wave model helps you to do just that.
The Wall Street classic book, Elliott Wave Principle: Key to Market Behavior by Frost & Prechter, says:
...action in the same direction as the one larger trend develops in five waves.
Here are illustrations:
Let's now learn how the Elliott wave model identifies countertrend moves within the main trend by returning to Elliiott Wave Principle and additional illustrations:
... reaction against the one larger trend develops in three waves.
Lastly, let's learn how Elliott wave analysis signals the resumption of the main trend.
Elliott Wave International analyst Jeffrey Kennedy says:
A complete Elliott wave cycle consists of eight waves. Upon its completion, a similar cycle ensues....
Again, here are illustrations of the point:
The reason that a market's basic form is five waves followed by three waves is that this is the most efficient method of achieving both fluctuation and progress in linear movement.
Think of it as a variation of nature's "two steps forward, one step back" model of achieving progress.
After all, humans are a part of the natural world, so it only follows that the financial markets, a product of human interaction, would carry the same imprint.
As you might imagine, there are many more details in applying the Elliott Wave Principle to financial markets, and it took an entire book to lay them all out.
The purpose of this article is to simply show you that the price patterns of financial markets unfold according to a repetitive, predictable structure. Familiarity with that structure can help you determine what's next.
Jump on once-in-a-lifetime opportunities and avoid dangerous pitfalls that no one else sees coming. We can help you prepare for opportunities and side step risks that will surprise most investors. You can get deeper insights in Elliott Wave International's new free report: 5 "Tells" that the Markets Are About to Reverse. The insights that you'll gain are especially applicable to the price patterns of key financial markets, including the stock market, now.
Get more financial insights like these -- 100% free.
Elliott Wave International does not provide investment advice. All rights reserved.
Editors’ Picks
USD/JPY jumps above 156.00 on BoJ's steady policy
USD/JPY has come under intense buying pressure, surging past 156.00 after the Bank of Japan kept the key rate unchanged but tweaked its policy statement. The BoJ maintained its fiscal year 2024 and 2025 core inflation forecasts, disappointing the Japanese Yen buyers.
AUD/USD consolidates gains above 0.6500 after Australian PPI data
AUD/USD is consolidating gains above 0.6500 in Asian trading on Friday. The pair capitalizes on an annual increase in Australian PPI data. Meanwhile, a softer US Dollar and improving market mood also underpin the Aussie ahead of the US PCE inflation data.
Gold price flatlines as traders look to US PCE Price Index for some meaningful impetus
Gold price lacks any firm intraday direction and is influenced by a combination of diverging forces. The weaker US GDP print and a rise in US inflation benefit the metal amid subdued USD demand. Hawkish Fed expectations cap the upside as traders await the release of the US PCE Price Index.
Stripe looks to bring back crypto payments as stablecoin market cap hits all-time high
Stripe announced on Thursday that it would add support for USDC stablecoin, as the stablecoin market exploded in March, according to reports by Cryptocompare.
US economy: Slower growth with stronger inflation
The US Dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.
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