Theory of Elliot Waves

In the days of the old school around the 20’s and 30’s, there was this great genius named Ralph Nelson Elliot. Elliot discovered that stock markets do not really work in a chaotic way as was believed.

Elliot discovered that markets operated in repetitive cycles, which were influenced by the emotions of investors and traders, which in turn were influenced by external factors such as economic news or by the predominant psychology of the masses at that time. .

The Elliot Wave theory explains that the upward or downward changes iven by the psychology of the masses always show the same repetitive patterns, which in turn are divided into patterns that he called waves. Hence the name.

Wave patterns 5-3
Elliot showed that a trend market moves in a way that he called: 5-3.
The first 5 are grouped in the impulse wave pattern. And the last 3 are called corrective waves.

This is a short description of what happens during each wave. The Elliot Wave theory was used in the first instance for actions, since it was what Elliot also used, but it does not really matter. They can easily be used with bonds, gold, oil, … The important thing is that this theory can also be applied to the Forex currency market.

Wave 1
The market initially moves up. This is usually because a small group of people suddenly feel (for various reasons, real or imagined) that the price of the stock is very cheap so it is the perfect time to buy. This causes the price to rise.

Wave 2
At this point, enough people who bought according to the previous wave, consider that the stock is overvalued and decide to take profits by selling. This causes the market to go down. However, the market will not reach its lowest previous point before the stock is considered a bargain again.

Wave 3
This is the longest and strongest wave. The action has caught the attention of the public. More people investigate about the action and want to buy it. This causes the price of the stock to rise more and more. This wave usually exceeds the point reached in wave number 1.

Wave 4
People take profits because the price is considered high again. These waves tend to be weak because there are usually more people who are still selling and still waiting to buy in the falls.

Wave 5
This is the point that is handled mainly by hysteria. You usually see the head of the company on the cover of an important magazine where they name him the “character of the year”.

Teoría de las Ondas de Elliot

The theory of Dow and its applications

Theory Dow – Who was Charles Dow?

Charles Dow was the son of a farmer and was born in Sterling in 1851. His father died when he was only 6 years old. This forced him to leave school and work as a laborer to support his family.

Later he began his career as a journalist. In 1889, he founded the company “Dow Jones Company”. The Dow Jones company published the first index, designed to represent the movement of the stock market. This index was called “Dow Jones”

Theory Dow- Definition

Dow’s trading theory is based on the analysis of maximum and minimum fluctuations of the market.

According to the Dow method, the importance of these maximums and minimums is a function of their location with respect to the previous maximums and minimums.

This methodology allows you to learn how to read a Trading chart and to better understand what happens in an asset at a specific time.

This simple analysis can allow even the most novice of us to identify the context in which an index of Forex or CFD shares evolves.

Another important point! Charles Dow supported the common belief of all traders and technical analysts that the price of an asset and the resulting swings in a Trading chart have all the information available and anticipated necessary.

Trading according to Dow theory
Basic principle:

The principle of the Dow Method in the technical analysis is to use the maximum and minimum points of the market to determine the context of the market, therefore:

If in a Forex chart you can identify a succession of increasingly high peaks and valleys.

Pros and cons of investing in Forex

Save a few dollars under the mattress is a form of currency savings that has passed from generation to generation. But the exchange of currencies as a form of investment is more complex and sophisticated than that.

To do it on a large scale, there is the Forex market, specialized in the exchange of currencies among investors from all over the planet. However, before entering it, it is necessary to know its characteristics and risks to avoid putting your heritage at risk, experts agreed.

“It is a fully electronic market and operates 24 hours a day through financial centers around the world, so it does not have a physical place of operation (since everything is done through the Internet),” he explained. General Director of Forex and Currency Research Center of the foreign exchange trading company Alpari, Roberto Pasalagua.

However, because of the volatility that characterizes this market, its aims are mainly speculative, that is, many people invest with the expectation of obtaining juicy profits in a short time; However, due to the volatility that characterizes it, “as well as it can be earned, it can be lost”, warned the managing partner of the financial advisory firm Privest, Antonio Díaz Bonnet.

In order to participate, it is necessary to go to a broker (operator) who provides the user with access to an electronic platform and who, for each operation performed by the user, charges a commission. The amount of contract opening may vary, but there are companies that request a minimum investment amount of $ 500.

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The risks

In general terms, specialists identify two types of risks when investing in Forex: the market, which refers to possible losses due to currency volatility, as well as the problem of investing through a company that is not regulated by the Mexican authorities.

“In Mexico, this market is not regulated, which means that in the country there is no authority that can support the participants if they need it,” said Mauricio Sotomayor, manager of Private Banking at Actinver Casa de Bolsa.

The companies that offer this service to Mexican investors are only representatives of foreign companies and therefore they are not financial institutions, according to information from the National Commission for the Protection and Defense of Users and Financial Services (Condusef).

Alpari, for example, is a company that offers its platform to Mexican participants, but which is not based in Mexico. Here they only have a call canter through which they give technical, non-financial support to local and Latin American investors who access their platform, explained Pasalagua.

This service is not offered by financial institutions, so the operation runs 100% on behalf of the investor, without support or advice.

“There is no international body to regulate all the activities of the Forex market worldwide because it is very large, however there are some bodies such as the Commodities Futures Trading Commission in the United States that regulates the market for the United States and Canada, and the Securities and Futures Associations in London for Europe “, according to information from Condusef.

What is the risk of Forex?

The main risk of forex lies in leverage. Leverage multiplies my profits, but if the market goes in the opposite direction to where I think (which will happen very frequently), my losses multiply. In fact, there is a lot of people losing their investment. Forex is very risky, and to lower the risk there are two options:

A lot of experience in technical investment analysis is needed in the first instance to operate leveraged
I must operate only with my own resources without leveraging myself. So you should have about 10,000 dollars ($ 217,370.00 Mexican pesos) and be willing to invest. Even so, you run the risk of losing all the money if you do not have experience.

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What is forex?

Forex, also known as currencies, FX or forex trading, is a decentralized global market of all currencies that are traded all over the world. This market is the largest and most liquid in the world, with a daily volume of operations that exceeds $ 5 trillion. The other stock markets in the world as a whole do not come close to this. But what does this mean? Take a closer look at forex trading and you will find interesting trading opportunities that are not available in other investments.

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If you have ever traveled abroad, you have made a transaction in forex. Travel to France and convert your pounds into euros. When you do this, the exchange rate between the two currencies – based on supply and demand – determines how many euros you will get for your pounds. And the exchange rate fluctuates continuously.