In This Chapter
Seeing how the markets move in waves
Realizing the downsides to subjective wave counting
Following an objective approach to wave theory
Trend trading is a beneficial way to make money in the markets because it allows you to make big profits while risking a small amount of money.
As I mention throughout this book, trend trading is trading the long-term moves of the market. However, the market doesn’t trend straight up or down during those long-term moves. On its way up or down in the direction of the trend, it wiggles or oscillates.
Chart analysts call these oscillations waves because they form short-term crests (highs) and troughs (lows) as the market moves in its long-term direction. This is similar to how the ocean makes a series of waves as the water moves toward the shore.
An uptrend typically forms a pattern of higher highs (wave highs) and higher lows (wave lows) in its long-term ascent. A downtrend typically forms a pattern of lower highs (wave highs) and lower lows (wave lows) in its long-term descent.
In this chapter, I explore the basics of wave theory, from Elliot waves to Fibonacci levels, and all the related ...