An Introduction to Forex and Elliot Waves

As a Forex trader you will always be attempting to make more profits than losses from the fluctuations of exchange rates between currencies in the forex market; in short, this is what is called forex trading.

And if you want to become a profitable forex trader you will need a good technique to forecast the market behavior with time; i.e., how the currencies value will fluctuate in the next period of time you are interested on trading.

One of the best techniques you can use to forecast the Forex markets is by using the Elliot Wave Theory.

Ralph Nelson Elliot also observed that the market has strong trends that seem to follow a repetitive pattern in all the different time frames; and after analyzing a great number of charts he discovered in the late 1920’s that the markets move in a repetitive manner that is far away from being a totally chaotic behavior.

And this was not all Elliot discovered; he also realized that this patterns had a fractal nature. This means that the patterns not only repeated with time but that in a given period of time the characteristic wave pattern would repeat at different scales (days, hours, minutes).

This is the most basic concept in Elliot’s theory; i.e., the largest wave structures are composed of smaller sub waves, and these in turn are composed of even smaller sub waves, and in principle this goes on to infinity.

Elliot gave a name to these wave structures calling them “wave degrees”, depending on the time frame you are looking at. The range of these degrees goes from centuries to hours.

Elliot distinguished Nine Wave Degrees in his studies, they are known as:

– Grand Supercycle – Supercycle – Cycle – Primary – Intermediate – Minor – Minute – Minuette – Sub Minute

In principle these degrees can go to infinity and they clearly show you can choose the time frame you like better, according to your trading objectives, and the patterns you will see will be the same in any of these time frames.