Elliott Wave Analysis - a Useful Tool in Analyzing the Market Moves

Many traders use the Elliott concept to analyze trend changes. Tradecision offers them a special study that identifies Elliott wave and corrections. Even though some professional traders do not agree with some of Elliott’s findings, he definitely must be admired for the ideas he contributed to the trading theory, many of which are very useful.

Automatic Identification of Waves

Elliott wave analysis is one of Tradecision’s core analytical studies designed specifically for devoted Elliott Wave analysts. This study uses the simplified Elliott Wave theory, stating that a price usually makes a 5 wave pattern in one direction, followed (in the majority of cases) by a corrective pattern, and, finally, by a new 5 wave pattern in the opposite direction.

The Elliott wave study uses a special mathematical algorithm to resolve conflicting situations and identify waves and corrections as precisely as possible. The experts can fine-tune this algorithm. For example, it’s possible to specify a parameter that indicates the percentage for which Wave 4 can overlap Wave 1 before the Wave count is considered invalid.

The way the study can be presented, colors and style can be easily customized.

Custom Elliott Wave Toolbar

If you need to make a custom Elliott Wave-based analysis, you can use the Custom Elliott Wave toolbar to manually mark the wave numbers over a chart. Once added, it can be repositioned any where by clicking and dragging it to its new position.

A Brief Overview of the Elliott Theory

In 1939, Ralph Nelson Elliott published a pattern-recognition technique, which holds that the stock market follows a rhythm or pattern of five upward waves and three downward waves to form a complete cycle of eight waves. The three downward waves are referred to as a "correction" of the preceding five upward waves.

Wave is a movement in the market, either upwards or downwards. The size of the wave depends on the period of time that is being analyzed. Impulse Wave is a wave that moves in the direction of the main market trend. It subdivides into 5 smaller waves (1-2-3-4-5). Waves 1, 3, and 5 move in the direction of the main market trend. Waves 2 and 4 move against the main market trend.

Corrective Wave is a wave that moves in the direction opposite to the direction of the main market trend. It subdivides into 3 smaller waves (a-b-c). Waves a and c move against the main market trend. Wave b moves in the direction of the main market trend.