Elliott Wave Theory was invented by Ralph Elliot in the 1930s forextradingbrokerwebsite forextradingwebsiteonline still widely used today The theory is based on cashback forex activity forming the same patterns that are well documented, and because of this it is closely related to the Fibonacci sequence Elliott Wave Theory presents a five- forex trading site model between rising and falling In rising markets, there are three driving waves split by two adjusting waves, while in falling markets, there are three adjusting waves and two driving waves Predicting the market The key to successfully predicting the market is to be able to determine which wave the market is currently in and then trade in the expected direction In order to do this, Elliott waves can be plotted on price charts Elliott also offers nine different wave classifications that can be used to better delve into the correct market phase The first is the main wave, called the mega cycle wave, this wave usually lasts for several months as the markets main price action mega cycle waves also have some corrective waves, however, the third wave is the most powerful wave During the third wave, the market experiences the biggest rise or fall, and most traders will enter the market at this time Unfortunately, this is probably the worst time for investors to buy, as buying here greatly reduces their profit margins, usually near the top of the wave Similarities to the Fibonacci sequence Although Elliott had not heard of the Fibonacci sequence when he devised his wave theory, it is interesting to note that the two There are many similarities between the theories In fact, the Fibonacci sequence of 1,1,2,3,5,8,13,21,34,55,89,144 to infinity describes the same laws of the natural world, including plants and galaxies, that Elliotts wave theory seeks Like Elliotts wave theory, Fibonacci theory also proposes a 1,3, 5 structure of the wave cycle as well as the complete eight-wave cycle The complete trend includes an 89-wave structure with a corrective pattern showing a 55-wave pattern Interestingly, the Elliott Wave and Fibonacci series identify similar percentage figures for retracements Both theories point to 78.6% as the best place to buy in a sustained upward market, a position that offers the trader the best risk/reward Ratio
