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:

Trend Up Down

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.

Countertrend

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:

Eight Waves

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.

Education feed

Editors’ Picks

EUR/USD advances 1.10 amid upbeat trade headlines, after mixed US retail sales

EUR/USD is trading closer to 1.1050, up on the day. US Commerce Secretary Ross has expressed optimism about reaching a deal with China. The Retail Sales Control Group met expectations with 0.3%.

EUR/USD News

GBP/USD soars past 1.2900 as Farage gives additional boost to Conservatives

GBP/USD has leaped above 1.29, the highest since early November, as the Brexit Party has failed to field candidates in 43 additional seats, facilitating a victory for PM Boris Johnson.

GBP/USD News

USD/JPY clings to gains near session tops, around 108.70 post-US data

The USD/JPY pair maintained its strong bid tone near session tops and had a rather muted reaction to the mixed US economic data.

USD/JPY News

Editors’ Picks

EUR/USD advances 1.10 amid upbeat trade headlines, after mixed US retail sales

EUR/USD is trading closer to 1.1050, up on the day. US Commerce Secretary Ross has expressed optimism about reaching a deal with China. The Retail Sales Control Group met expectations with 0.3%.

EUR/USD News

GBP/USD soars past 1.2900 as Farage gives additional boost to Conservatives

GBP/USD has leaped above 1.29, the highest since early November, as the Brexit Party has failed to field candidates in 43 additional seats, facilitating a victory for PM Boris Johnson.

GBP/USD News

USD/JPY clings to gains near session tops, around 108.70 post-US data

The USD/JPY pair maintained its strong bid tone near session tops and had a rather muted reaction to the mixed US economic data.

USD/JPY News

Crypto Today: Playing with the thin red line

BTC/USD has fallen below $8,500 during the Asian trading session. A close below this support level would put $7,500 on the trading table. ETH/USD is moving below the 50-period exponential moving average.

Read more

Gold looks to close week with small gains below $1,470

The precious metal struggled to find demand on Friday as the upbeat market mood on renewed hopes of the United States and China reaching a trade deal to avoid a tariff hike in December caused investors to move away from safe havens.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology