Forex Trading- The Wave Theory

Ever since the Foreign Exchange market began, there had been a number of different theories regarding this financial market and how it moves. Each can be used to understand the forex market better in hopes of improving one's odds in trading. One popular theory is known as the Elliot Wave Theory.

The Elliot Wave Theory was conceived about seventy or more years ago with the stock market. It was observed that the market movements on charts can be described as waves which reoccur every now and then. The theory goes that there's five short waves that appear which are caused by different factors with one effect. For example, a group of people suddenly purchases a certain good which results in a gradual increase shown on charts which would look like a series of waves; after this, a series of three more waves follow but going to the opposite direction which is known as the corrective waves.

This theory may have started with the stock market but it was proven that this theory is also applicable to the forex market. This can be used so that the trader can understand what's going on with the market right now in order to help him or her with making a decision. Understanding how the market moves is important when it comes to forex trading because you simply cannot rely on luck when it comes to this financial market. A lot of people have already lost their money in this market due to common mistakes; this can be avoided simply by understanding how the forex market moves.