How to Apply Elliott’s Wave Theory

Elliott Waves: How to profitably apply this theory to the CAC 40?

Elliott Waves Theory represents a real step forward from the Dow Theory developed for equity market analysis at the end of the 19th century. Indeed, it assumes that markets are moving at a steady general pace in the short term as well as in the long term. If you want to invest in the CAC 40, it may be a good idea to apply Wave Theory.

The main stock market index of the Paris Stock Exchange, the CAC 40 is determined from the 40 largest French companies. There are several options for investing in the company: the purchase of shares, SICAV or other securities in order to place them in a title account or a PEA. Investors may also choose to apply an index strategy of buying the CAC 40 index in its entirety. In this article, we explain how to properly apply Elliott’s Wave Theory.

Elliott Waves : what is wave theory?

Ralph Nelson Elliott refers to three important phenomena for analyzing financial market movements:

  • The form that is analogous to a progression in successive waves.
  • The amplitude that can be estimated thanks to Fibonacci ratios.
  • The duration of the waves.

The application of Elliott’s Theory on the CAC 40 involves identifying the primary or cyclical wave. The analyst’s job is also to maintain long positions to take advantage of the trend or shorten them in anticipation of a correction.

How do I recognize Elliott’s Waves on the CAC 40?

Elliott Waves Theory is based on the fact that stock markets are predictable because they are based primarily on human psychology. Indeed, investors adopt optimistic or pessimistic behaviours according to natural sequences. Different markets are therefore subject to this theory, including the CAC 40 and the FTSE, which depend on human investors. This analysis is now used as a basic rule by professional institutional portfolio managers, traders but also by private investors. Entire books on Wave Theory make it easier to master this technical analysis and its application. It should be added that risk control is an inseparable element of stock market investment. as we constantly remind us on the trading blog.

Trading signals and Elliott Waves

Technical analysis is essential before taking a position. whether you are bullish or bearish, it is important to never forget money management and the fundamental strategy. Elliott’s Wave Theory is one of them like any other trading indicator. Don’t ever forget to trade with a regulated broker.

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