I just studied the Elliott Wave theory, which is a relatively old price analysis method, but still very useful for trading today. This theory was developed by Ralph Nelson Elliott, an American accountant, in the 1930s. He observed that the stock market is not as random and chaotic as it seems, but follows repeating patterns of movement.

Once I learned that Elliott Wave is a system for counting price waves, I started to see its interesting aspects. The theory states that prices tend to move in a pattern of 5 waves in the direction of the main trend, followed by a correction with 3 waves. This pattern results from investor psychology: when the market is rising, people are confident and buy; when confidence wanes, they sell, creating repeating wave patterns.

Using Elliott Wave involves identifying these waves to find good entry points. Waves 1, 3, and 5 are upward waves, while waves 2 and 4 are corrective downward waves. The A-B-C correction waves move against the main trend. What makes traders interested is combining Fibonacci ratios with Elliott Wave to determine key price levels, such as wave 2 often retracing 50-61.8% of wave 1, and wave 3 typically being 161.8% of wave 1.

The advantage is that it allows precise entry and exit points, helping traders plan their trades. The downside is that it requires experience in wave counting, as different traders may see the start and end of waves differently. Sometimes, it can be confusing to distinguish whether a wave is a correction or the main trend.

This technique works well in Forex, stocks, and crypto markets. Try looking at a 4-hour or daily chart to see which wave the price is in. If you see that wave 5 has completed, be prepared for a correction. If you're still in wave 3, there might still be room for the price to go higher. It’s important to use other tools as well; Elliott Wave alone should not be relied upon.