5 Waves Pattern:
Forex market is expanding day by day. Its popularity is increasing manifold with every passing hour. Its multi-layered trade and variety of features and facilities grab the attention of the traders of all age groups. There are different patterns in fore trading to show and expose the movement of the price of currencies in forex market. 5 waves pattern is one of the most popular patterns of forex trading. This is also one of the easiest patterns to understand and analyze. It reflects the shift of price of a particular currency in the form of 5 waves.
It is also called Impulse Waves. This pattern of waves can be used to analyze the price of all financial markets. It can be applied to currencies, gold, oil etc. Each wave reflects the step by step movement and shifting of price. Let’s have a look on the expression of the price movement in the form of these interesting impulse waves.
The first wave indicates the first move of the price of a currency. The first move is mostly upwards. It is mostly not a prominent rise in the price so it is a bit cheap to buy that currency. This affordable price attracts the attention of buyers but just a limited number of traders believe that it is the right time to buy that certain currency. The second wave shows a fall in the price as most of the traders feel that it is the perfect time to earn profit thus they sell it. Therefore there is a decrease in the price. However even after this fall in the price, it is still greater than its original value.
The third wave highlights the strength of that currency. Now it has attracted the attention of masses. Thus traders are extensively buying it which reflects in the sudden and notable increase in the price. In fact now the price of that currency has created new high level which is far greater than the high level of the first wave. The fourth wave shows the weakness of the currency as most of the traders are selling it to grab maximum profit. The fifth wave exposes the overpriced state of that currency as traders are literally competing to buy it. Such an increase in price will ultimately lead to the creation of ABC Pattern.