Dow Theory
This is the oldest theory on technical analysis. It states that prices fully reflect all existing information. The theory was developed principally around stock market averages. It holds that prices progress into three types of wave patterns: primary; secondary and minor. This theory also identifies retracement patterns, which are the average levels by which trends pare their movement. Retracements are set at 33%, 50%, and 66%.
Fibonacci Retracement
This popular series is based on mathematical ratios that arise from natural and artificial phenomena and is used to determine how far a price has rebounded or backtracked from its underlying trend. The most significant retracement levels are 38.2%, 50%, and 61.8%.
Elliot Wave
This allows technicians to classify price movements in patterned waves that can indicate future targets and reversals. Waves moving with the trend are identified as impulse waves, and those moving against the trends are identified as corrective waves. This theory goes on to break down impulse and corrective waves into five and three primary movements, respectively. The eight total movements comprise a complete wave cycle. The time frame for these waves can range from anywhere from 15 minutes to decades. The key to this theory is being able to identify the wave context, so that the analyst can determine the role of the wave in relation to the greater wave structure.
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