Elliott Wave Theory in Day Trading - Elliott wave principle

Elliott Wave Theory is a theory in financial markets that waves of buying and selling form patterns. The patterns are 5 points on the way up and 3 to retrace.
Elliott Wave Theory in Day Trading - Elliott wave principle
Buying Inertia
Wave 1 
The stock makes its initial move upwards as buyers become greater than sellers.

Wave 2 
Some take profit while others feel it is a good time to sell. For this part of the wave the sellers overcome the buyers.

Wave 3 
This is usually the longest and strongest wave. The trend has caught peoples attention. More buyers enter at this point seeing it as a pullback to an upward trend.  This causes the stock’s price to go higher and higher. We like to see this wave exceed the high created at the end of wave 1.


Wave 4 

Profit taking and shorter's come in feeling that the stock has reached it's high peak potential and it will return down. This wave tends to be weak as an upward trend is in place so more people are still bullish on their perception of the stock. Sellers do not enter in force.

Wave 5 
More buyers enter the stock as a feel of never going down enters the minds of those perceiving the movement. This is when the stock becomes the most overpriced. Contrarians start shorting the stock becoming the first to ride the reversal which starts the ABC pattern.



Selling Inertia
Wave A

Sellers enter the stock as the red candlesticks come in. Hoping to get the retracement to a more realistic price. This causes more red candlesticks to come in and we see the end of the upward trend and the beginning of the reversal. Day traders that are brave or contrarian investors will profit most from this move if the are not spooked by the bumps in the road on the way down.

 

Wave B

Sellers cease to enter and buyers once again take over control. This is a time when the downward trend may be challenged or when shorter's cover there position called a short squeeze.

 

Wave C

Sellers enter the stock as the red candlesticks come in. Hoping to get the retracement to a more realistic price. This causes more red candlesticks to come in and we see the end of the upward trend and the beginning of the reversal. Day traders that are brave or contrarian investors will profit most from this move if the are not spooked by the bumps in the road on the way down.




Elliott Wave Theory was designed with the Fibonacci Wave Theory.

 

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In a bearish trend the Elliot graphs work the opposite way.
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Elliott Wave Theory in Day Trading - Elliott wave principle


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