Wave four is a period of profit-taking resulting in a pulled back price, but way more orderly than in the case of wave two. It is the most active stage at which market participants are aggressively adding the positions. Wave three starts slow but as soon as it breaks the high point of wave one the rally starts to pick up the momentum. It is followed by wave two which has a vicious sell-off but still allows the starting of another rally – wave three.
The first wave of the uptrend pattern contains a weak rally of a very tiny amount of traders participating. The pattern of the motive wave can be an uptrend or downtrend.
Three of them are impulse waves (waves 1, 3, and 5), and two are diagonal waves (waves 2 and 4). The first one is the Motive Wave which consists of five smaller waves. Motive Wave PatternsĮlliott Waves pattern comprises two major types of waves. Hence, you will be acquainted with the core foundations of EW theory, but if you would like to become an expert in the matter it is better to read the original theory itself and modern updates.
Motivewave video requirements software#
Instead, we will provide a general overview of the system to make it clearer for our readers how they will need to apply the theoretical notions since it will help them choose the proper EW charting software programs. We will not go in-depth of the theory itself to uncover every detail and concept the author developed as it would take us through a long journey. Today, we will cover the very essentials of EW concepts in Forex trading, the strategies and indicators in combination with it, and the best Elliott Wave software reviews that traders can access today. However, much of the theory has been retained in the Forex industry but the labeling, set-ups, and main themes have been modified to an extent that it has become almost unrecognizable from its origins. One of the greatest examples is the appearance of the Elliott Wave in crypto trading. However, today, a lot has changed in terms of the application of R.N Elliot’s theories and many took unorthodox turns to transform the existing principles into hybrid routes. However, EW theory is rarely used as a stand-alone approach and is often combined with the principles of Fibonacci ratios or other Support & Resistance levels. The main application of the theory for any trader is to detect the presence of the most destructive wave formation which later can be used in one’s favour. The theory is widely accepted nowadays and actively used in the day-to-day trading of both beginner and expert traders. However, the Elliott Wave theory is a unique concept that has been brilliant in describing the fractal nature of various financial markets. Ralph Elliott used quite a lot from the Dow Theory and borrowed three impulses and two correlations. The upward and downward swings were the reflections of the traders’ emotions and these swings got the name of “waves”. These cycles represented the predominant emotions of investors worldwide and reappeared on the market from time to time.
Elliott saw that the patterns were behaving in a repetitive cycle. Instead of the chaotic and unpredictable manner in which everyone considered the market trends to behave he identified an intrinsic narrative. It was in 1934 when Ralph Nelson Elliott noticed one crucial thing about price action charts.