Sentiment in the Forex Market: Indicators and Strategies to Profit from Crowd Behavior and Market Extremes

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c07 JWBK195-Saettele June 5, 2008 19:52 Printer: Yet to come

CHAPTER 7

Explanation of

Elliott Wave and

Fibonacci

I

n this chapter, I will cover the basic rules, of which there are just a few,

of wave formation and introduce setups for timing your trade. “A rule is

so called because it governs all waves to which it applies. Characteris-

tics of waves are called guidelines.”

1

Many guidelines of impulse formation

and many details pertaining to corrective patterns are not covered here.

Also covered briefly in this chapter is Fibonacci analysis. Many traders are

familiar with Fibonacci retracements but do not realize that Fibonacci was

first introduced as a method of technical analysis by R. N. Elliott. In fact,

Fibonacci is the mathematical basis for the wave principle.

If you long for a fuller understanding of Elliott (which includes

Fibonacci), then I urge you to read the books listed in the Notes section

at the back of the book. An experienced Elliottician has at his or her dis-

posal what I believe to be one of the most powerful market timing tools in

existence.

WHO WAS ELLIOTT?

Ralph Nelson Elliott was a successful accountant early in the twentieth

century and “held executive positions primarily with railroad companies

in Mexico and Central America.” His success in turning around troubled

rail companies attracted the attention of the U.S. State Department, and

in 1924 the ...