Forex Wave Theory: A Technical Analysis for Spot and Futures Currency Traders

By James L. Bickford

Overview

Published in 2007 by McGraw-Hill, "Forex Wave Theory" provides a comprehensive treatment of wave analysis techniques applied specifically to the foreign exchange markets. The book combines a historical survey of wave theory methodologies with original quantitative research on cycle patterns in currency price data, offering traders a systematic framework for analyzing and forecasting price movements.

Key Themes and Arguments

Currency Market Fundamentals

The book opens with a practical overview of spot and futures currency markets, including pip and tick relationships, transaction cost calculations, and contract specifications. This foundation ensures readers understand the mechanical aspects of forex trading before engaging with the analytical content.

Reversal Charts

Bickford provides detailed coverage of the three primary reversal chart types used in wave analysis: point and figure charts, renko charts, and swing charts. He explains how each method filters out market noise to reveal underlying price trends, and discusses the advantages and disadvantages of different reversal amounts and chart parameters.

History of Wave Theory

The book surveys the major wave theory systems: Dow Theory and its origins, Gann angles and their geometric approach to price-time relationships, the Kondratiev long-wave economic cycle, Elliott Wave Theory with its impulse and corrective patterns, Gartley harmonic patterns (including butterfly, bat, and crab variations), and the Goodman Swing Count System.

Quantitative Cycle Analysis

The book's most original contribution is its systematic statistical analysis of wave cycles of varying lengths (two through six waves). For each cycle length, Bickford catalogs the frequency distributions of different cycle types, analyzes the predictive reliability of various pattern configurations, and develops forecasting methodologies based on ratio analysis and autoregressive models.

Fractal Properties

The advanced topics section examines the fractal nature of price movements -- the property that wave patterns at one time scale are composed of similar patterns at smaller scales. Bickford demonstrates how forecasts can be calculated at multiple fractal levels to provide higher-confidence trading signals.

Significance

The book stands out among wave theory texts for its quantitative rigor and its specific focus on forex markets. Rather than relying on subjective pattern recognition, Bickford provides statistical evidence for the predictive value of various wave configurations, giving traders objective criteria for evaluating potential trades.