When you understand theories and laws, you’ll know what to look at! Your FX life will dramatically change with just 5,000 yen. Series [Foundations] Eye-opening! 10 minutes to understand FX ⑧ = Theory / Composite Materials = Dow Theory, Elliott Wave, Cycle

Well, now that most of the ingredients for this series are in place in its second half, we will soon move into the final construction phase.

Some people find theory difficult, but once you clarify what you want to do and what you should do, it becomes simple.

Let’s start learning right away.

First, let’s list representative theories and assume them as the basis for collective psychology.

Dow Theory, Elliott Wave, Cycle Theory, and the Law of Grahame? (Gr anville's Law) — these four.

If you sort them by ease or difficulty, Dow Theory is easy, Elliott Wave is difficult, Cycle Theory is difficult, and Grail? Actually Granville's Law is easy, something like that.

However, theory is only a theory, and unless you interpret it in a way that fits actual charts, it is often not useful at all, as many of you know.

And although Dow Theory is said to be simple, there are many who not only don’t remember its six basic principles but also can’t apply them.

Let’s first grasp those.

1. The averages incorporate all events

2. There are three types of trends (major trend, secondary trend, minor trend)

3. There are three stages of a trend (accumulation/advance, public participation, distribution/realization)

4. A trend must be confirmed by others

5. A trend must also be confirmed by volume

6. A trend continues until a clear reversal signal appears

What I can say from here is that Dow Theory is not merely a matter of rising or falling patterns, but about probing the points where the collective psychology responds to the trend.

Elliott Wave analysis involves looking for progression within the framework of a starting point and an ending point. Without the concepts of a start and an end, simply fitting the pattern diagram to the current location will not work at all.

Cycle theory uses cycles between bottoms to explore, within the context of higher time frames, a reliable bottom.

Granger's law (Graham's Law) does not function well on its own, but when a series of conditions align, it shows a very strong reaction.

That area will be understood roughly as the overall flow learned so far if you watch from “eye-opening in 10 minutes! FX9 Moving Averages, Ichimoku Kinko Hyo, Bollinger Bands, Fractals” to “Eye-opening in 10 minutes! FX➉ Bollinger Bands 0.5 Touch [High-Probability Method].”

Don't rush; this time, let's build on the materials so far and understand the overall materials not as isolated pieces but as an interlinked whole.

Now, the explanation of the diagram.

The black square is a range.

The thick black horizontal line is the virtual target relative to the range.

The pink arrow indicates the most recent downward wave.

The orange horizontal line is the half-value (halfway point) relative to the most recent downward wave.

The green horizontal line is the upper limit of the range and the zero-sum point.

The light blue line is the trendline relative to bottoms a and b.

The black and thin horizontal line represents the strong neck and the half-value of the wave.

1 is the price behavior that occurred when the lead-up stage player appeared in Dow Theory.

2 is the price behavior in the subsequent follow-through stage.

3 is the price behavior in the take-profit stage.

What to note at this point is: if in the take-profit stage the follower reaches the virtual target during the follow-through stage, how will the price action in the take-profit stage behave? Consider this.

If the virtual target is not yet reached, the follower is more likely to follow; if the virtual target has already been reached during the follow-through, then the follower in the take-profit stage is less likely to follow.

Also, whether there is a reversal signal depends on whether the current close of the recent downward wave rises above the half-value of that wave, affecting the reaction of lines a, b to c.

During a decline, a strong neck will cause repeated pullbacks and further decline; if there are areas where the wave’s half-value has not been pushed, there is a high probability of further downward pressure—remember this too.

Additionally, up to point b, the theoretical framework includes: Dow Theory with rising and falling trends, a range with a starting point of a range breakout, the progression toward a virtual target as the end point in Elliott Wave, and the observation of a top-to-bottom that occurs between the top and bottom b when candles on higher-timeframes adjust their periods; this is the bottom that aligns with higher-timeframe cycle theory—imagine all this being linked up.

Thereafter, red circle-wise, the materials of Granger's Law will prompt a strong reaction to upward movement.

When you can visualize this flow, you will realize that throughout your learning you were chasing a single material, and there may be materials that cannot be discovered by that one-track pursuit.

If you identify the key points this way, there is a high possibility that you can form a general set of judgments for almost any market condition.

Let's verbalize these key points to observe.

Regarding theory, as you have seen, there are four: Dow Theory, Elliott Wave, Cycle Theory, Granger's Law.

Regarding technical aspects, indicators will be learned later through Eye-opening in 10 minutes! FX9 Moving Averages, Ichimoku Kinko Hyo, Bollinger Bands, Fractals to make judgments.

As for the flow of細部情報 on the chart,

1. Always confirm the range and don’t miss it (to counter false signals)

2. Do not overlook the direction from market intuition and progression (to counter false signals and secure strategy)

3. Explore the shape and meaning of the waves and infer

4. Explore and infer the meaning of candlestick price action

If you check in this order, you should be okay overall.

If you as a reader are not performing even one of the four items above, your win rate is likely limited to about 70%.

In other words, whatever method you use, performance will be at a limit when it declines.

If you expect a breakthrough, you should definitely check the four items above and try to infer their meaning.

Also, regarding theory, must all four be present? At minimum, three should be enough to reasonably ensure reliability.

In trading, there are rarely moments when all three elements line up.

Even if two elements line up on the opposite side, if your side has three elements aligned, your advantage can still be maintained.

For minimal performance maintenance, any method should be operable with filters so that the numbers stay reliable; however, considering adjusting disappointing numbers, it is better to build higher-quality trades and strategies for more stability.

Nevertheless, attempting something too difficult right away leads to human errors, and losses from mistakes will likely occur anew.

Build sufficient practice with demo trading, and avoid real trading until you can guarantee at least minimal numbers.

Also, if human error tends to remain high, consider creating tools that automate trading or provide signals.

In any case, about whether all people will get the same results with the same information, there will always be individual differences; there are also personal abilities and mental control considerations, so optimalization is difficult.

As for this point, since each person has their own best solution, this is a matter of trying various things and trading within a tolerable range.

For humans, information that does not settle in cannot be executed accurately.

If you keep this in mind, you should trial things for a reasonable period before drawing conclusions.

Good luck.

Now that concludes this learning session for now. See you next time.