If you have yet to notice, technical analysis focuses on trends. Remember: the market does trend 70% of the time, and that amount of trending is enough to make serious profits in the market.
These trends are occasionally described as market waves. These market waves can be explained by Elliot Wave Theory, which allows us to spot trends that emerge when traders hop on a trend en masse. If we can understand the psychology of the masses, then we can profit on the waves they make in the market.
In the following sections, you’ll learn about Elliot Wave Theory.
Elliot wave theory will help us make sense of market retracements and reversals.
Reversals and retracements are very different. A market reversal is an event where the market completely changes direction whereas a retracement is a market event where the price merely makes a minor move in a larger trend.
To put it simply, a reversal is a complete change of direction in a currency pair’s price. A retracement is a minor movement against a bullish or bearish trend.
Elliot Wave Theory has a massive following among technical analysts, and we think it would be worth your time to study.
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