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Elliott Wave

The document discusses Elliott Wave theory which analyzes financial market cycles. It describes the 5 wave pattern (3 impulse waves and 2 correction waves) and different types of impulse and correction waves such as zig zags, flats, triangles, and complex corrections. Key aspects covered include identifying wave patterns, typical retracement levels between waves, volume and sentiment changes during waves, and rules waves must follow like not overlapping prior waves.

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jrladdu
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257 views24 pages

Elliott Wave

The document discusses Elliott Wave theory which analyzes financial market cycles. It describes the 5 wave pattern (3 impulse waves and 2 correction waves) and different types of impulse and correction waves such as zig zags, flats, triangles, and complex corrections. Key aspects covered include identifying wave patterns, typical retracement levels between waves, volume and sentiment changes during waves, and rules waves must follow like not overlapping prior waves.

Uploaded by

jrladdu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Elliott Wave

Fractals
Each Wave will be
shown in both a
bullish uptrend
(above) and a bearish
downtrend (below)
Motive Impulse
Waves
(Price moves
in direction of Diagonal
trend)
Impulse
• Rule 1) Wave 1 cannot
retrace more than 100%

• Rule 2) Wave 3 cannot be the


shortest wave

• Rule 3) Wave 4 cannot


overlap wave 1 (except in a
diagonal)
Impulse vs
Corrective
waves
• Impulse waves
• Waves 1,3 and 5
• Subwave count – 5 waves
• Higher volume (especially wave 3)

• Corrective waves
• Waves 2 and 4
• Subwave count – 3 waves
• Reducing volume (particularly in
triangles)
• Alternating complexity between waves 2
and 4
Start (Wave 1 )
and End (Wave 5)

• Momentum divergence
• Sentiment reaches extremes
• Increased media attention
Wave 2
• Retraces typically 50-61.8% of
Wave 1
• Rule – Cannot retrace > 100%
of Wave 1
• Often made up of a Zig-Zag
• News and Fundamentals still
in keeping with Start of
Impulse
• Previous major trend is still
considered strong
Wave 3
• Usually the most powerful wave
• Rule – cannot be the shortest
wave
• Change in media and
fundamentals (completely
reverse by end of wave 3)
• Shallow pullbacks
Wave 4
• Will often retrace to the level of
wave 4 of 1 lesser degree of the
preceding wave 3
• Profit taking wave
• Preceded by loss of momentum
and volume from wave 3
• Reduced Media coverage
• Rule – cannot overlap with wave
1
• Typically retraces 38.2 -50% of
wave 3
• Usually the longest duration
wave
Diagonal
• Occur infrequently
• Wedge Shape
• Leading diagonal: Waves 1 and A
• Subwave count: 5,3,5,3,5
• Ending Diagonal: Waves 5 and C
• Subwave count: 3,3,3,3,3
• Often associated with an
overthrow outside of the wedge,
at the terminal end of the
diagonal
• Wave 4 overlaps with wave 1
Wave 4
• Will often retrace to the level of
wave 4 of 1 lesser degree of the
preceding wave 3
• Profit taking wave
• Preceded by loss of momentum
and volume from wave 3
• Reduced Media coverage
• Rule – cannot overlap with wave
1
• Typically retraces 38.2 -50% of
wave 3
• Usually the longest duration
wave
Zig-Zag
• Very common
• Subwave count: 5,3,5
• Sharp correction (as opposed
to sideways correction)
• A is often equal in length to C
Flats
• Common
Regular
• Subwave count: 3,3,5
• Often seen when
underlying trend is
strong Running
• Sideways correction,
typically seen in Wave 4

Expanded
Regular Flat
• Forms a rectangular trading
range
• Wave B reaches price of the
preceding impulse wave
• Wave C retraces to the same
price as Wave A
• Upon completion, it provides
a good horizontal price level
to place a stop, below the A
and C wave
Running Flat
• B wave finishes slightly
beyond the preceding
impulse wave, due to a strong
major trend
• Wave C fails to retrace to the
price of Wave A
• Wave B does not usually
extend more than 138.2% of
Wave A
• Wave C is usually equal to
Wave A
Expanded Flat
• Each Wave gets slightly longer
than the one before it
• B wave finishes slightly
beyond the preceding
impulse wave, due to a strong
major trend
• Wave B does not usually
extend more than 138.2% of
Wave A
• Wave C Retraces more than
Wave A and often up to
161.8% of Wave A
Triangles
• Common Symmetrical
• Sideways correction,
typically seen in Wave 4
• Subwave count:
3,3,3,3,3
• Each wave gets
Ascending
increasingly shorter
• Often seen when
underlying trend is
strong Descending
• Volume continuously
reduces during the
triangle
Symmetrical
Triangle
• Falling Tops and Rising
Bottoms
• Supply is equal to Demand
Ascending
Triangle
• Rising Bottoms and Flat Tops
• Seen due to Demand
exceeding Supply
• More common in a Bull
market with a breakout to the
upside
Descending
Triangle
• Falling Tops and Flat Bottoms
• Seen due to Supply Exceeding
Demand
• More common in a Bear
market with a breakout to the
downside
Complex
Corrections
WXY
Often occurs as a market
is awaiting more
information, e.g before
some scheduled news or
whilst waiting for a
correlated market to
complete its correction
WXYXZ
WXY
• Common
• Subwave count: 3,3,3
• 2 corrective waves (W,Y), separated by an X
wave
• X wave is a corrective wave of a lesser
degree
• Waves W,X and Y can be made up of any
type of correction(But W Wave cannot be a
triangle – as triangles only occur as a final
correction in a complex correction or
within an X Wave)
• Often occurs as a market is awaiting more
information, e.g before some scheduled
news or whilst waiting for a correlated
market to complete its correction
• Commonly presents as a Double Zig-Zag
Ascending
Triangle
• Rising Bottoms and Flat Tops
• Seen due to Demand
exceeding Supply
• More common in a Bull
market with a breakout to the
upside

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