This step contains all the topics about predicting the Forex market movement. The Elliott Wave pattern, the ABC Correction and the Fibonacci Relationships are the contents of this step.
RN Elliott, an expert proposed a theory for trading in market. This theory was named after its founder as Elliott Wave theory. He believed the existence of eight waves in the trading market. These waves are used to predict the market direction. According to this theory, currency prices are managed by the market cycles. Fibonacci series is used to find the market cycles. Eight waves are present in a complete Forex market cycle out of which five are the impulse waves that occur in the trend direction and the other three are the corrective waves that occur against the trend direction. The names of the waves are Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette and Sub-Minuette. The main concept of trading using theory is of identifying the main wave and opening a position and closing it as soon as the reversal of prices is determined.
According to Elliott there are three waves which are against the trend direction and these opposing waves are known as the Corrective Waves. Corrective Waves of any trading pattern are broadly termed as the ABC Corrections. Corrective waves are difficult to identify as compared to the Impulse waves because of having more variations. ABC Corrections are classified into four types and those are the Zigzags (5, 3, 5), Flats (3,3,5), Triangles(3,3,3,3,3) and Double and Triple Threes.
Fibonacci that is a unique mathematical sequence of numbers is used to predict the minimum and maximum price levels and predict the movement of the Trend lines. Leonardo de Pisa is credited for introducing this unique mathematical sequence of numbers. According to Leonardo de Pisa, every number of the Fibonacci sequence is the sum of the previous two numbers. The Fibonacci Extension and the Fibonacci Retracement make up a Fibonacci sequence. Moving to some point on the Forex Trading chart is known as the Fibonacci Extension and then retracing back is termed as the Fibonacci Retracement.