Published On: Tue, Jan 29th, 2013

Elliott Wave Theory

The Elliott Wave Theory is a principle that tells a story of the state of a financial market’s investor psychology.

It is a measure of market psychology by investment sector and not by investment product.  In other words, Elliott Wave indicators for Brent North Sea Crude Oil futures are the same for a Brent North Sea Crude Oil tied ETF.

The first principal to the Elliott Wave Theory is that the same external event can move the markets up or down, and therefore the market’s reaction to events is inconsistent. The second principal is that the financial markets move in waves.  Using these two ideas, the market technician will use statistics to predict the future direction of the market.  A trader can then place his trades in the direction of the market with the highest probability of positive correlation and therefore gain on the predictive quality of the market technicians buy and sell signals.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.