The theory of Elliott wave was initially proposed by Ralph Nelson Elliott during the 1930s
. He was an accountant who came to be inspired by the book Natures Laws: The Secret of the Universe. He came up with the Elliott concept in 1946 and it was then be deemed as a pseudo-science notion. However people believed it is an effective way to deal with the uncertainties and consistently fluctuating market, although several academics disregard it. Nevertheless, Paul Tudor Jones, Robert Prechter and few other famous figures acknowledges that it could bring success.
If you intend to trade using the Elliot theory, you have to first understand the Elliott wave trading system. The price pattern has been categorized into several different types by the wave theorists. The trade opportunities are also considered on the trend basis that come under low levels. Albeit the Elliott theory being constructed for a interval of years or possibly up to decades, the fraction of the price action can still be applied even within a meager timeframe, at any time.
The theory of Elliot wave classifies the price action into five primary phases. The first phase sees the trend being rather vague as only a tiny figure of traders is aware of the potential. The next phase does have a small correction but it is not capable of pushing the prices over to the beginning point of the trend. The phase number three is believed to be the most powerful and strongest of all. It stimulates a great number of bystanders into the pricing action while phase four is named the ensuing corrective chapter. The final segment is phase number five, deemed to be the bubbling phase of the trend. In this fraction of phase, massive amount of capital enters the market and everyone is at the bullish state. The journey ends with an ultimate phase of collapse.
Actually there is no specific rule from the Elliott wave trading system of which phase should go first as most traders depend on their personal intuitions to decide. However novice traders need not be too worried as sooner or later when they master or get accustomed to using it you will eventually know which phases to begin with. As everyone is different, the wave theory applies differently as well.