Five Wave Reuction In FOREX

When the ascending trend ends, the same crowd, which raises the price, provided the conditions for its subsequent decline. Holders of long positions are in a false sense of confidence, while the rally lost momentum and a model vertex. Since the "fast money" quietly went to the market, the trend reaches a critical point: the bulls suddenly realize that they were lured into a trap. In seeking to protect profits, they start to close positions. Price fails and sales are increasing wave after wave.

Common features of the model occur in the majority of price reductions. Several reasons are false, and fail. The volume has increased, as the losers sell their assets for undervalued assets ohotyascheysya crowd. The price is moving steadily downstream, reaching the goal for goal. Then also, as the collapse of hope, market-based instruments creates a final, multiple grounds.

Analysis of the model offers an excellent way for the short-term trading, in order to understand and earn the repeat behavior of the market. Not mudrstvuya archly, just look at the work of RN Elliott's 1930's and you will find five - wave decline. This structure for price correction is as effective today as it was 70 years ago. And, as the formula of the crowd, traders can use it, not going into details of a broader Elliott wave theory.

Five - wave reduction consists of three descending impulses and two corrections. The first pulse (top) adjusts upward trend, which has a price to a new peak. This summit begins setback prices, which ends with the second pulse (1): a technical breakthrough marketing tool. As with rising markets, the momentum can be very dynamic. But in most cuts, most powerful movement is usually left in the end. Since the 2nd impulse completed base paints a false picture calming, which slows down the sale, and even introduces a small purchase. Sales then suddenly renewed and accelerated in the final 3 of the third pulse (2), which is so emotional that the price of overcoming initial objective and reasonable support zones.

Emotion of this last wave extinguishes pressure sellers podbrasyvaya price. This rapid upward movement ignites the first impulse of the counter-significant trend. This strong rally then fails suddenly. As holders of long positions are preparing for more tests, the previous minimum unexpectedly retained. A new crowd then comes into play, and the price returns to the trend line of 1-2, as a dual basis. The balance of power is changing, and market-based instruments burst through the line in a new upward trend.

An experienced trader can see the five - wave reduction at all time scales from 5 min to monthly bars. These volatile movements fit perfectly into a large structure of greed, which is trend-cycle through a predefined and predictable process. And subconscious behavior of the crowd, presented this model is not only the financial markets.

Terms of trend line five - wave reduction

1st, 3-i and 5th wave pulses in the Elliott wave theory are 1-2-vertex in the calculation of reductions. Connect the 3rd (1) and 5 th (2) wave trend line. Ignore the 1-th (top) wave of this trend line may violate in any way. The first impulse after the decline could approach close to the trend line, but rarely violate it.