What is Elliott wave principle (EWP)..?
Ever wondered that why the term Elliott wave principle (EWP) is mentioned everywhere in our website. That's ok, first let us address the basic question about what is Elliot wave principle (EWP).
We all know that people are behind markets and they make the markets rally or plummet. What makes this contradictory reaction in markets....?
People are not influencing the markets but in turn their psychology takes the power of influencing.
let us consider a scenario,
where there are only 5 people participating in a market where 3 persons decide to buy and 2 persons decide to sell.Therefore, the net (overall) reaction in the markets is that, it would be rallying instead of dropping because majority is in the buy side (3>2). Here 3 people haven't made the markets rally but their psychology did its part.from all this we can infer that psychology has a major standalone role to play with markets.
The psychology in the markets leaves a trace of wave patterns which are identified and summarized in the form of Elliott wave Principle.
The Elliott wave principle was found by R.N.Elliott, it is a combination of Social principles and Fibonacci and Drawing tools formulated in 1930 and published in 1938, (final publication in 1948). Elliott observed every pattern in market and came to a conclusion that every pattern has its very own significance based on mass psychological behavior and it is related to crowd's social mood.
Definition of EWP
The mass psychology or crowd psychology moves to and fro from optimism to pessimism and these mood swings create distinct patterns in price action at every degree of trend or in time scale .
Significance of EWP
With the help of EWP, an analyst can determine what has happened at past relating it to happenings in present and also linking it to the future forecasts.
Elliot wave principle gives broader perspective for any markets than any other technical analysis method or tool.
The EWP helps in easily understanding where the market is about to turn and where it is to rally,which helps in the easier identification of Entry, Exit and Stop-loss zones. This knowledge gives the trader or investor a great confidence to trade, which no other method offers.
Finally, one can understand what makes the markets move (not any technical indicators or bank policies or data releases and news definitely not).
Why is it Important to learn EWP...?
One can use indicators and oscillators and follow data releases and central bank policies and hoping that he/she will be a remarkable trader one day and it is really pathetic that these persons can never make any fortune from markets following all those things. These people will not only lose their money but they will also loss their confidence and develop a negative complex about themselves because of the only one underlying question "why can't i win in markets, is that a problem with me..?", this makes them restless. well, we hope that only EWP makes you an expert in the field and also answers all your questions.
One should be definitely know that, the oscillators and data releases are external to markets and markets are never driven by any external factors at any time. The only thing that drives the markets is the crowd psychology which is internal to markets. This practice can only be incorporated when a person learns and practices EWP.
Theory behind markets
Most of the people assume that the markets are majorly driven by economy (so that people are watching news, data releases and bank's policies) but believe us that it is really the other way around. The explanation is as follows,
When the stock markets are rising, the companies will have more cash inflows through the sale of their shares and increase their level of production or servicing through the people's money to generate huge profits and revenue to the company which in turn makes them pay for taxes increasingly than before and also as an increase in both export and import duty if they are exporting products and as an import duty if they are importing more raw materials from other countries and also accelerated paying of their debts in banks. As a result, all these things make the economy of the country to have an uproar and when the economy is good,the central banks increase their benchmark interest rates on their currencies. Therefore,all this process are dependent on markets growth and when the psychology flips the markets down the whole thing collapses, which we call it as a recession period (now every one reading this article knows why every country have their own recession period and not in tandem with others) and where the people think that the economy lifts the markets and you now know the real truth.
You should notice one important take away from this article that, "the market psychology (a.k.a crowd psychology) plays the vital role in the whole process and it is very important for a serious trader to know about the psychology compulsorily and it's significance in leading markets.
"As you sow, so shall you reap".
When one sows knowledge & efforts ,definitely that individual will reap success. To gain knowledge one should invest his hard work and time.We will take care of your work part and make it simpler as much as we can but however, investing time for gaining experience depends on an individual's motivation and interest.
"Not knowing is really not a problem but not even knowing that you don't know is a grave danger to you and your investments".