Importance of Harmonic Elliott Waves
Analyzing Harmonic Elliott Waves is largely based on three rules. There are multiple valid interpretations of any market within the framework. The reliability of an Elliott wave forecast is a function of mastery of the theory. A lot of functions have been developed to increase the reliability of Harmonic waves by adding Fibonacci, wave substructure, etc. Harmonic waves are useful for short term traders as it enhances its accuracy. Thus, Elliott's wave analysis in its raw firm will remain a powerful tool over time.
How was Elliott Wave Theory found and How to use it?
Ralph Nelson Elliott, the founder of Elliott wave theory, proposed that trends in financial prices resulted from investors' predominant psychology. He found that swings in mass psychology always showed up in the same recurring fractal patterns or 'waves' in capital markets. Elliott discovered stock index price patterns were structured in the same pattern. So, he began to look at how these recurring lines can be used to predict future market moves. An impulse wave, in which the net travels in the same direction as the larger trend, always shows five-wave fractals in its patterns. A corrective wave on the other side travels in the opposite direction. The structure of A-B-C fractals is accurate and needs to be followed with utmost perfection.
Eliott uncovered his fractal nature of price charts in financial markets in the 1930s, but a decade later, scientists recognized and demonstrated it. Just because the five-wave fractal in motion is easily available, it does not make the predictability easy. Scientists recognize a tree as a fractal, but that does not mean anyone can predict the path of each of its branches. Getting an accurate wave labeling may be tricky, as multiple scenarios and labeling revisions are a reality. This problem may reduce the accuracy of the methodology, it could still yield powerful insight., A person can practically apply the Elliott wave principle only if he is an ardent follower of this analysis method.