DOCSLIB.ORG

Applying Elliott Wave Theory and Testing Its Explanatory Power on Eur/Usd Exchange Rate

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Applying Elliott Wave Theory and Testing Its Explanatory Power on Eur/Usd Exchange Rate UNIVERSITY OF LJUBLJANA SCHOOL OF ECONOMICS AND BUSINESS MASTER'S THESIS APPLYING ELLIOTT WAVE THEORY AND TESTING ITS EXPLANATORY POWER ON EUR/USD EXCHANGE RATE Ljubljana, June 2019 MIHA MOČAN AUTHORSHIP STATEMENT The undersigned Miha Močan, a student at the University of Ljubljana, School of Economics and Business, (hereafter: SEB LU), author of this written final work of studies with the title Applying Elliott Wave Theory and Testing Its Explanatory Power on EUR/USD, prepared under supervision of professor Aleš Berk Skok DECLARE 1. this written final work of studies to be based on the results of my own research; 2. the printed form of this written final work of studies to be identical to its electronic form; 3. the text of this written final work of studies to be language-edited and technically in adherence with the SEB LU’s Technical Guidelines for Written Works, which means that I cited and / or quoted works and opinions of other authors in this written final work of studies in accordance with the SEB LU’s Technical Guidelines for Written Works; 4. to be aware of the fact that plagiarism (in written or graphical form) is a criminal offence and can be prosecuted in accordance with the Criminal Code of the Republic of Slovenia; 5. to be aware of the consequences a proven plagiarism charge based on the this written final work could have for my status at the SEB LU in accordance with the relevant SEB LU Rules; 6. to have obtained all the necessary permits to use the data and works of other authors which are (in written or graphical form) referred to in this written final work of studies and to have clearly marked them; 7. to have acted in accordance with ethical principles during the preparation of this written final work of studies and to have, where necessary, obtained permission of the Ethics Committee; 8. my consent to use the electronic form of this written final work of studies for the detection of content similarity with other written works, using similarity detection software that is connected with the SEB LU Study Information System; 9. to transfer to the University of Ljubljana free of charge, non-exclusively, geographically and time-wise unlimited the right of saving this written final work of studies in the electronic form, the right of its reproduction, as well as the right of making this written final work of studies available to the public on the World Wide Web via the Repository of the University of Ljubljana; 10. my consent to publication of my personal data that are included in this written final work of studies and in this declaration, when this written final work of studies is published. Ljubljana, ________________________ Author’s signature: _________________________ (Month in words / Day / Year, e. g. June 1st, 2017 TABLE OF CONTENTS INTRODUCTION ......................................................................................................................... 1 1 ECONOMIC THEORIES AND MODELS OF EXCHANGE RATE DETERMINATION .......................................................................................................... 3 1.1 Economic Theories ...................................................................................................... 3 1.1.1 Purchasing Power Parity (PPP) ........................................................................ 4 1.1.2 Monetary Models ............................................................................................. 6 1.1.3 Interest Rate Parity ........................................................................................... 9 1.1.4 Balance of Payments Theory ......................................................................... 12 1.1.5 The Fisher Hypothesis ................................................................................... 13 1.1.6 Asset Market Model ....................................................................................... 18 1.2 Economic Models for Predicting FOREX Prices ................................................... 19 1.3 Economic Data ........................................................................................................... 20 1.3.1 Inflation .......................................................................................................... 20 1.3.2 Interest rate ..................................................................................................... 20 1.3.3 Country's Debt................................................................................................ 21 1.3.4 Unemployment Rate ...................................................................................... 21 1.3.5 Gross Domestic Product (GDP) ..................................................................... 22 1.3.6 Manufacturing Costs ...................................................................................... 22 1.3.7 Current and Capital Account .......................................................................... 22 1.3.8 Speculators ..................................................................................................... 22 1.3.9 Political Stability and Economic Prosperity .................................................. 24 1.3.10 Relative Strength of Other Currencies .......................................................... 24 1.3.11 Macroeconomic and Geopolitical Events ..................................................... 24 2 BASIC ELLIOTT WAVE CONCEPT .......................................................................... 24 2.1 The Five-Wave Pattern ............................................................................................. 25 2.2 Wave Characteristics ................................................................................................ 28 2.3 Impulsive Waves Rules, Extensions and Truncations ........................................... 32 2.3.1 Basic Rules ..................................................................................................... 32 2.3.2 Extensions ...................................................................................................... 33 2.3.3 Truncation ...................................................................................................... 34 i 3 ELLIOTT WAVE PATTERNS ..................................................................................... 35 3.1 Ending and Leading Diagonals ............................................................................... 35 3.2 Expanding Diagonals ................................................................................................ 36 3.3 Types of Correction Patterns................................................................................... 38 3.3.1 Zigzag Corrections ........................................................................................ 38 3.3.2 Flat corrections .............................................................................................. 40 3.3.3 Triangle Corrections ...................................................................................... 42 3.3.4 Complex Corrections ..................................................................................... 44 3.4 Alternation ................................................................................................................ 46 3.5 Price Movement Following an Extended Fifth Wave ............................................ 47 3.6 Channelling ............................................................................................................... 47 3.7 Volume ....................................................................................................................... 49 4 APPLICATION OF ELLIOTT WAVE THEORY ON CURRENCY PAIR EUR/USD ......................................................................................................................... 49 4.1 Data Description ....................................................................................................... 51 4.1.1 Gathered and Analyzed Economic Data for USD ......................................... 51 4.1.2 Gathered and Analyzed Economic Data for EUR ......................................... 51 4.1.3 Descriptions of High and Medium Impact Economical Data and Its Importance ..................................................................................................... 52 4.2 Statistical Results of My Research .......................................................................... 58 4.3 Summarizing Analytical Results ............................................................................. 60 CONCLUSION ........................................................................................................................... 62 REFERENCE LIST .................................................................................................................... 67 APPENDICES ............................................................................................................................... 1 LIST OF FIGURES Figure 1: The Fisher Effect ........................................................................................................... 15 Figure 2: Basic five-wave pattern ................................................................................................. 25 Figure 3: Basic Elliott wave pattern .............................................................................................. 26 Figure 4: Elliott wave super-cycle ................................................................................................ 28 Figure 5: Trend
Load more

Recommended publications
  • Elliott Wave Principle
    THE BASICS OF THE ELLIOTT WAVE PRINCIPLE by Robert R. Prechter, Jr. Published by NEW CLASSICS LIBRARY a division of Post Office Box 1618, Gainesville, GA 30503 USA 800-336-1618 or 770-536-0309 or fax 770-536-2514 THE BASICS OF THE ELLIOTT WAVE PRINCIPLE Copyright © 1995-2004 by Robert R. Prechter, Jr. Printed in the United States of America First Edition: August 1995 Second Edition: February 1996 Third Edition: April 2000 Fourth Edition: June 2004 August 2007 For information, address the publishers: New Classics Library a division of Elliott Wave International Post Office Box 1618 Gainesville, Georgia 30503 USA All rights reserved. The material in this volume may not be reprinted or reproduced in any manner whatsoever. Violators will be prosecuted to the fullest extent of the law. Cover design: Marc Benejan Production: Pamela Greenwood ISBN: 0-932750-63-X CONTENTS 7 The Basics 7 The Five Wave Pattern 8 Wave Mode 10 The Essential Design 11 Variations on the Basic Theme 12 Wave Degree 14 Motive Waves 14 Impulse 16 Extension 17 Truncation 18 Diagonal Triangles (Wedges) 19 Corrective Waves 19 Zigzags (5-3-5) 21 Flats (3-3-5) 22 Horizontal Triangles (Triangles) 24 Combinations (Double and Triple Threes) 26 Guidelines of Wave Formation 26 Alternation 26 Depth of Corrective Waves 27 Channeling Technique 28 Volume 29 Learning the Basics 32 The Fibonacci Sequence and its Application 35 Ratio Analysis 35 Retracements 36 Motive Wave Multiples 37 Corrective Wave Multiples 40 Perspective 41 Glossary FOREWORD By understanding the Wave Principle, you can antici- pate large and small shifts in the psychology driving any investment market and help yourself minimize the emo- tions that drive your own investment decisions.
    [Show full text]
  • New Elliott Wave Principle
    History The Elliott Wave Theory is named after Ralph Nelson Elliott. In the 1930s, Ralph Nelson Elliott found that the markets exhibited certain repeated patterns. His primary research was with stock market data for the Dow Jones Industrial Average. This research identified patterns or waves that recur in the markets. Very simply, in the direction of the trend, expect five waves. Any corrections against the trend are in three waves. Three wave corrections are lettered as "a, b, c." These patterns can be seen in long-term as well as in short-term charts. In Elliott's model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend, as the illustration shows. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves. In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it and hence called corrective waves. Ideally, smaller patterns can be identified within bigger patterns. In this sense, Elliott Waves are like a piece of broccoli, where the smaller piece, if broken off from the bigger piece, does, in fact, look like the big piece. This information (about smaller patterns fitting into bigger patterns), coupled with the Fibonacci relationships between the waves, offers the trader a level of anticipation and/or prediction when searching for and identifying trading opportunities with solid reward/risk ratios.
    [Show full text]
  • FOREX WAVE THEORY.Pdf
    FOREX WAVE THEORY This page intentionally left blank FOREX WAVE THEORY A Technical Analysis for Spot and Futures Currency Traders JAMES L. BICKFORD McGraw-Hill New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2007 by The McGraw-Hill Companies. All rights reserved. Manufactured in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. 0-07-151046-X The material in this eBook also appears in the print version of this title: 0-07-149302-6. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales pro- motions, or for use in corporate training programs. For more information, please contact George Hoare, Special Sales, at [email protected] or (212) 904-4069. TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licen- sors reserve all rights in and to the work. Use of this work is subject to these terms.
    [Show full text]
  • The Titans of Technical Analysis by David Penn REAL WORLD
    Stocks & Commodities V. 20:10 (32-38): The Titans Of Technical Analysis by David Penn REAL WORLD A Celebration Of Technical Analysts From Dow To Zweig The Titans Of Technical Analysis A not-so-random walk through the history of charting the observations, and commentary on the subjects of trading markets. and technical analysis. From our earliest issues featuring reviews titled “An Easy Course In Using The HP-12C And by David Penn Other Financial Calculators” to the present issue, which includes pages of Traders’ Tips in sophisticated computer any years ago, a poet friend who was editing language, no other publication has had its finger on the pulse a collection of contemporary verse noted to of both applied and theoretical technical analysis for as long me that “about half the working poets in as STOCKS & COMMODITIES. And this has been no mere M America are going to be really upset about minding the store. this anthology. Of course, the other half of them are in the S&C publisher Jack Hutson introduced the TRIX, or triple book. …” exponential smoothing oscillator, in 1983. The Richard Such sentiments came to mind when I embarked upon the Wyckoff method was reintroduced to the world via these task of highlighting the few among the many whose contri- pages in 1986. John Bollinger, Jack Schwager, and Vic butions to the field of technical analysis have made them Sperandeo were all among S&C’s interviews in 1993. In the what STOCKS & COMMODITIES has designated the “Titans nine-odd years since then, as a bull market in equities resumed, Of Technical Analysis.” S&C was on hand to provide technical tools for minimizing How subjective is such a list? In some ways, all too risk and maximizing gain — whether through new indicators subjective — particularly with those whose contributions (such as John Ehlers’ MESA adaptive moving averages), new are more recent or are less widely enjoyed.
    [Show full text]
  • Elliott Wave Technical Analysis Course - Part 2
    Elliott Wave Technical Analysis Course - Part 2 Surfing the Waves with Richard Tataru www.orbex.com Who is Orbex? Orbex is a global award-winning online forex broker, fully licensed and regulated by CySEC, specializing in the provision of access to the world’s biggest and most liquid financial mar- kets. Orbex has a rich experience of ensuring superior customer service. Traders enjoy 24/5 multilingual support, exceptional trading conditions, and a wealth of educational material. Since its founding in 2010, Orbex has focused on the quality of its services and technologi- cal advancement. As a part of our customer support program, we provide enhanced securi- ty of clients’ funds and high professionalism in confidential finance matters. Orbex under- stands the value of rapid decisions on fast-paced financial markets; therefore, we ensure sharp execution, sound market analysis, and extensive trading education. For our business partners, we have developed an outstanding Forex Affiliate Program, including personal business consultant, custom marketing campaigns, innovative affiliate dashboard, competitive commissions and leading reporting technology that provides full control over your business. Join Orbex and enjoy the new trading experience! About the Author Richard is passionate about technical analysis with years of charting experience under his belt. When it comes to his insights and how he analyses the markets, he uses leading analysis tools. In particular, Elliott Wave Analysis is his forte, and he dedicates the majority of his time to using and perfecting this analytical method. Richard uses Elliott Waves in combination with Struc- tures, Patterns, Divergences, and then spices things up with Vibration Levels, Fibonacci measurements, Chan- neling, Break-outs or Flag formations.
    [Show full text]
  • Elliott Wave Principle.Pdf.Pdf
    A CAPSULE SUMMARY OF THE WAVE PRINCIPLE The Wave Principle is Ralph Nelson Elliott's discovery that social, or crowd, behavior trends and reverses in recognizable patterns. Using stock market data as his main research tool, Elliott isolated thirteen patterns of movement, or "waves," that recur in market price data. He named, defined and illustrated those patterns. He then described how these structures link together to form larger versions of those same patterns, how those in turn link to form identical patterns of the next larger size, and so on. In a nutshell, then, the Wave Principle is a catalog of price patterns and an explanation of where these forms are likely to occur in the overall path of market development. Pattern Analysis Until a few years ago, the idea that market movements are patterned was highly controversial, but recent scientific discoveries have established that pattern formation is a fundamental characteristic of complex systems, which include financial markets. Some such systems undergo "punctuated growth," that is, periods of growth alternating with phases of non- growth or decline, building fractally into similar patterns of increasing size. This is precisely the type of pattern identified in market movements by R.N. Elliott some sixty years ago. The basic pattern Elliott described consists of impulsive waves (denoted by numbers) and corrective waves (denoted by letters). An impulsive wave is composed of five subwaves and moves in the same direction as the trend of the next larger size. A corrective wave is composed of three subwaves and moves against the trend of the next larger size.
    [Show full text]
  • A Study to Understand Elliott Wave Principle
    International Journal of Engineering Research and General Science Volume 4, Issue 4, July-August, 2016 ISSN 2091-2730 A STUDY TO UNDERSTAND ELLIOTT WAVE PRINCIPLE Mr. Suresh A.S1 Assistant Professor, MBA Department, PES Institute of Technology, Bangalore South Campus, 1km Before Electronic city, Hosur Road, Bangalore – 560100 Phone: 96861-95506 Email: [email protected], [email protected] Dr. S Naveen Prasath2 Assistant Professor, MBA Department, PES Institute of Technology, Bangalore South Campus, 1km Before Electronic city, Hosur Road, Bangalore – 560100 Email: [email protected] ABSTRACT- The Elliott Wave Principle states that markets move in natural patterns according to changing investor psychology and price momentum. Specifically, crowd psychology will move from optimism to pessimism, and back up again, making it possible to forecast the progression of certain market trends. "The Wave Principle" is Ralph Nelson Elliott's discovery that social, or crowd, behavior trends and reverses in recognizable patterns. The Wave Principle is not primarily a forecasting tool; it is a detailed description of how markets behave. Many areas of mass human activity follow the Wave Principle, but the stock market is where it is most popularly applied. Indeed, the stock market considered alone is far more important than it seems to casual observers. According to the Elliott Wave theory, market move in the five distinct waves existing on the upside and the three distinct waves existing on the downside. The upwards waves that lie in the bull move are termed as Impulse waves and the other three waves that are against the trend direction are termed as Corrective waves.
    [Show full text]
  • Contents World Stock Markets
    March 2021 Contents World Stock Markets . 2 Global Stock Index . 2 United States . 3 Europe . 8 Asian-Pacific . 13 Global Interest Rates . 20 The Bond Universe . 20 United States . 21 European and Asian-Pacific . 25 International Currency Relationships . 26 Dollar Rates . 26 Other Rates . 29 Cryptocurrencies . 31 Metals & Energy . 32 Gold & Silver . 32 Crude Oil . 32 Natural Gas . 33 Economic, Monetary and Cultural Trends . 34 Economy & Deflation . 34 Cultural Trends . 37 A Capsule Summary of the Wave Principle . 39 Glossary of Terms . 42 March 2021 Issue © March 5, 2021 (data through March 4) Announcements Steven Hochberg will conduct a workshop at the MoneyShow Virtual Expo on March 16 at 12:10pm EST. Steve will discuss GMP’s forecast for stocks, bonds, the U.S. dollar and precious metals. Register here: www.elliottwave.com/ wave/MoneyShow. Join our first-ever crypto trading course, “Crypto Trading Masterclass: Practical Strategies to Capitalize on the Hottest Market.” We start April 6. Get full details here: www.elliottwave.com/wave/CryptoCourse. Our next session of the Certified Elliott Wave Analyst (CEWA) 1 Prep Course has begun. Get the recordings now, and join instructor Jeffrey Kennedy, CEWA-M, for a live Q&A onApril 15. Learn more: www.elliottwave.com/CEWA. Our Customer Care team keeps winning awards! They received the “Best Customer Service 2020” designation from Live Help Now, and they’ve just received back-to-back monthly awards from the same group. We know we have a great team. It’s nice to hear that others think so too. WORLD STOCK MARKETS Asian-Pacific Markets - Bottom Line Most Asian-Pacific markets are correcting their U.S.
    [Show full text]
  • Elliott Waves Principle
    Written By 2 Table of Contents DISCLAIMER ...................................................................... 4 Introduction ...................................................................... 5 What are the Elliott Waves? ............................................. 5 What Makes an Impulsive Move? ..................................... 7 Types of Impulsive Waves ................................................. 8 Third Wave Extensions ................................................... 9 First Wave Extensions ................................................... 10 Fifth Wave Extensions .................................................. 11 What Makes a Corrective Move? .................................... 12 Simple Corrections ........................................................ 12 Complex Corrections .................................................... 13 Where to Start the Count? .............................................. 14 Conclusion ....................................................................... 15 ForexBoat Trading Academy | Elliott Waves Principle https://www.forexboat.com 3 Copyright © ForexBoat 2018, All Rights Reserved. The right of ForexBoat Pty Ltd to be identified as the author of the Work has been asserted him in accordance with the Copyright, Designs and Patents Act 1988. All Rights Reserved. No part of this publication may be reproduced, or transmitted in any form or by any means, electronic or otherwise, without written permission from the author. ForexBoat Trading Academy | Elliott Waves Principle
    [Show full text]
  • 5 Technical Tools for Cryptocurrency Price Swings
    5 Technical Tools for Cryptocurrency Price Swings Here are the tools: 1. Elliott Wave Analysis Elliott Wave is a special type of technical analysis that traders use to analyze and forecast market cycles and trends by identifying extreme price highs/lows, investor psychology and other such factors. The Elliott Wave Principle works on the premises that markets are influenced by collective investor psychology aka crowd psychology, which makes it move in natural sequences of optimism and pessimism. Elliott Wave lends itself well to cryptocurrency trading because there are no true fundamentals that are currently driving the crypto markets; rather investor sentiment is the main driver of prices. 2. Fibonacci Levels Fibonacci Levels is a popular tool that is based on the Fibonacci Sequence. It’s used to predict support/resistance levels for different types of assets. The most commonly used Fibonnacci levels are 38.2% and 61.8%, often rounded off to 38% and 62%. Fibonacci levels alert the trader to a possible trend reversal, support or resistance level. A bounce in a trend is usually expected to retrace at least part of the previous trend. Traders can use Fibonacci Retracement levels to identify possible bullish reversals during downtrends or possible bearish reversals during uptrends. 3. MACD or Moving Average Convergence/Divergence MACD or Moving Average Convergence/Divergence is a highly popular indicator with day traders. MACD is used to compare price movements between a short-term moving average and a long-term moving average. The 12-day exponential moving average (EMA) and the 26-Day EMA are typically used.
    [Show full text]
  • Elliott's Wave Theory in the Field of Econophysics and Its Application to the Psi20 in the Context of Crisis
    E STUDIOS DE E C O N O M Í A A PLICADA V OL . 37-2 2019. P ÁGS . 41-53 ELLIOTT'S WAVE THEORY IN THE FIELD OF ECONOPHYSICS AND ITS APPLICATION TO THE PSI20 IN THE CONTEXT OF CRISIS SANDRA CRISTINA ANTUNES RIBEIRO OBSERVARE – Observatório de Relações Exteriores, Universidade Autónoma de Lisboa ISCAL- Instituto Superior de Contabilidade e Administração de Lisboa PORTUGAL E-mail: [email protected] ABSTRACT In the last decades and in the scope of the economic sciences, new interdisciplinary forms have been developed, of which Econophysics stands out. It uses theoretical bases of physics and of statistical physics for the explanation of economic phenomena, particularly financial phenomena. This work shows, through statistical physics, possible forms of chart analysis of a stock exchange index, through the practical application of Elliott’s Wave Theory to the movement of the Portuguese stock index, the PSI20. With the empirical application made to the PSI20, we emphasize the degree of reliability that the Elliott method has demonstrated when applied to large indexes, generating projection scenarios based on patterns of repetitive cyclic behaviour. It is possible, and for several moments, to identify the Elliott wave pattern, namely in the crisis period. Keywords: Econophysical, Technical Analysis, Elliott’s Wave Theory, Portuguese stock market. La teoría de las ondas de Elliott en el campo de la econofísica y su aplicación a la PSI20 en el contexto de la crisis RESUMEN En las últimas décadas y en el ámbito de las ciencias económicas, se han desarrollado nuevas formas interdisciplinares, de las cuales se destaca la Econofísica.
    [Show full text]
  • FTG Global Market Forecast
    F T G G L O B A L M A R K E T F O R E C A S T T H E S O U R C E F O R G L O B A L T R A D I N G O P P O R T U N I T I E S AUG 2020 ISSUE | BY VIC PATEL C H A R T O F T H E M O N T H - G B P U S D , P A G E 3 M A R K E T A N A L Y S I S AUDUSD, EURUSD - 2 GBPUSD, USDCAD - 3 USDJPY, BITCOIN - 4 ETHEREUM, RIPPLE - 5 S&P 500, DAX INDEX - 6 EURO STOXX 50, BUND - 7 MARKET SNAPSHOT: ( 1 month outlook ) AUDUSD - BEARISH S&P 500 - BEARISH US T-BOND, CRUDE OIL - 8 EURUSD - BEARISH DAX INDEX - BEARISH GBPUSD - BULLISH EUROSTOXX 50 - BEARISH USDCAD - NEUTRAL EURO BUND - BEARISH USDJPY - BULLISH US BOND - BEARISH GOLD, SILVER- 9 BITCOIN - BULLISH CRUDE OIL - BEARISH ETHEREUM - BULLISH GOLD - BEARISH RIPPLE - NEUTRAL SILVER - BEARISH AUGUST 2020 ISSUE PAGE 2 AUDUSD The price action has completed a 5 wave bullish impulse move. The momentum during wave 3 was much stronger than during wave 5. This is the expected behavior, and as such a divergence pattern has formed on most momentum based indicators. We expect price to retrace to the downside. A confirmation of the next bearish leg will occur upon the break below the trendline that connects the swing lows in wave 5 as shown.
    [Show full text]