Forex - Elliott Wave Theory

8/11/2019 Forex - Elliott Wave Theory

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Basic Elliott wave theory- essential concepts

Introducing:

Ralph Nelson Elliott (18711948), a professional accountant, discovered the underlying

social principles and developed the analytical tools in the 1930s. He published his theory of

market behaviour in the book The Wave Principle in 1938, summarized it in a series of

articles in Financial World magazine in 1939.

The wave principle is discovery that social or crowd, behaviour trends and reverses

in recognizable patterns. Using stock market data as his main research tool, Elliott

discovered that the ever-changing path of stock market prices reveals a structural design

that in turn reflects a basic harmony found in nature.

Until now, the Elliott wave theory is still one of the famous forecasting tools of the pricemovements. At now, one of the best research about Elliott wave you can refer detail on

"Elliott wave principle" Robert Prechter's books, search it on Google.

The analysing system of Elliott wave base on the wave patterns he discovered, at first we

must understand the structure and the rules of the waves:

The five wave pattern, and the cycle:

The movement of the prices take the form of five waves of specific structure; Three waves

of them, which are labelled 1,3,5 called impulse or motive wave, it indicates the direction of

the trend, they are separated by 2 countertrend interruptions, which are labelled 2 and 4,

called corrective wave ( partial retracement).

"R.N. Elliott did not specifically state that there is only one overriding form, the "five wave"

pattern, but that is undeniably the case. At any time, the market may be identified as being

somewhere in the basic five wave pattern at the largest degree of trend. Because the five

wave pattern is the overriding form of market progress, all other patterns are subsumed by

it." - cited in Robert Prechter' book.
http://anzforextrader.blogspot.tw/2013/09/basic-elliott-wave-theory-essential.htmlhttp://anzforextrader.blogspot.tw/2013/09/basic-elliott-wave-theory-essential.htmlhttp://2.bp.blogspot.com/-WcAaewzbZdQ/UjXslNjseHI/AAAAAAAAAIs/xHxUqpi-jIU/s1600/Five+wave+pattern.pnghttp://anzforextrader.blogspot.tw/2013/09/basic-elliott-wave-theory-essential.html


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The rhythm of five wave up and three wave down makes the complete cycle of eight waves.

'1,2,3,4,5' is motive phase, and 'a,b,c' is corrective phase. Every wave can be subdivided to

smaller wave, the image below will illustrate the cycle:

The wave degree can be subdivided into: Grand Supercycle, Supercyle, Cycle, Primary,

Intermediate, Minor, Minute, Minuette.

The Elliott wave rules - Motive waves

The motive waves:

It's the pattern of the five wave, wave 2 corrects wave 1, wave 4 corrects wave 3. The

sequence of wave 1 to wave 5 is corrected by the a b c sequence.

- The rules of impulse wave:

+ Wave 1 can be the impulse wave, or leading diagonal triangle pattern.

+ Wave 2 cannot retrace past the beginning of the wave 1.

+ Wave 3 must be the impulse wave.

+ Wave 3 cannot be the shortest wave of three impulse wave (1,3,5). It is almost the

longest wave.
http://anzforextrader.blogspot.tw/2013/09/the-elliott-wave-rules-motive-waves.htmlhttp://anzforextrader.blogspot.tw/2013/09/the-elliott-wave-rules-motive-waves.htmlhttp://4.bp.blogspot.com/-NQwkHHxo1r8/UjX1p4CQ8OI/AAAAAAAAAJI/IPtFBmnTJTk/s1600/cycle+label.pnghttp://3.bp.blogspot.com/-62bvfNDMzEg/UjXxqk4338I/AAAAAAAAAI8/gn3WUHk-ijo/s1600/Market+Cycle.pnghttp://4.bp.blogspot.com/-NQwkHHxo1r8/UjX1p4CQ8OI/AAAAAAAAAJI/IPtFBmnTJTk/s1600/cycle+label.pnghttp://3.bp.blogspot.com/-62bvfNDMzEg/UjXxqk4338I/AAAAAAAAAI8/gn3WUHk-ijo/s1600/Market+Cycle.pnghttp://anzforextrader.blogspot.tw/2013/09/the-elliott-wave-rules-motive-waves.html


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The ending triangle ( 3-3-3-3-3)

The ending triangle is the special type of motive wave, not yet the impulse wave. It takes a

wedge shape pattern with two converging lines, with each subwave subdividing into 3

wave.

You can see it in the image below:

The leading triangle (5-3-5-3-5)

The leading triangle pattern is a special type of motive waves too, but the structure is not

the same with the ending triangle. The 1st, 3rd, 5th wave of the leading triangle subdivide

into 5 wave.

The Elliott wave rules - corrective waves

Corrective wavesis the movement against the trend ( consolidation or letter phases). It is

more difficult to identify than the motive wave because the corrective waves have more

variations. The complexity of corrective waves can increase or decrease without warning,

so the extend and depth of corrective waves are less pridictable than impulse waves.

Corrective wave basic patterns:
http://anzforextrader.blogspot.tw/2013/11/the-elliott-wave-rules-corrective-waves.htmlhttp://anzforextrader.blogspot.tw/2013/11/the-elliott-wave-rules-corrective-waves.htmlhttp://1.bp.blogspot.com/-UBqM_0iZ21I/UkW9pi7DqYI/AAAAAAAAAKI/3lABk9b97Yg/s1600/leading+diagonal+triangle.pnghttp://4.bp.blogspot.com/-P5oNRVs5p1E/UkW8X-Ohf1I/AAAAAAAAAKA/-jxLvmva3r8/s1600/diagonal+triangle.pnghttp://1.bp.blogspot.com/-UBqM_0iZ21I/UkW9pi7DqYI/AAAAAAAAAKI/3lABk9b97Yg/s1600/leading+diagonal+triangle.pnghttp://4.bp.blogspot.com/-P5oNRVs5p1E/UkW8X-Ohf1I/AAAAAAAAAKA/-jxLvmva3r8/s1600/diagonal+triangle.pnghttp://anzforextrader.blogspot.tw/2013/11/the-elliott-wave-rules-corrective-waves.html


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Basic forms: Zigzag (5-3-5), flat (3-3-5), irregulars(3-3-5) and triangles(3-3-3-3-3).

Complex forms: double threes and tripple threes ( this corrective forms can be subdivided

into 4 categories: zigzag complex, flat complex, irregular complex).

Double threes patterns:
http://1.bp.blogspot.com/-2WELLqQnfTA/UnNlHTNilpI/AAAAAAAAAKw/3p9BM9X5iJc/s1600/double+threes+(+flat+complex).pnghttp://2.bp.blogspot.com/-VUYxUcgQLw0/UnNk14xR7BI/AAAAAAAAAKo/E3gaET6zsIw/s1600/double+threes+(+zigzag+complex).pnghttp://2.bp.blogspot.com/-d9CLWLPb9Vk/UnNjlKm_HXI/AAAAAAAAAKg/ZftYfOR8evk/s1600/basic+corrective+waves.pnghttp://1.bp.blogspot.com/-2WELLqQnfTA/UnNlHTNilpI/AAAAAAAAAKw/3p9BM9X5iJc/s1600/double+threes+(+flat+complex).pnghttp://2.bp.blogspot.com/-VUYxUcgQLw0/UnNk14xR7BI/AAAAAAAAAKo/E3gaET6zsIw/s1600/double+threes+(+zigzag+complex).pnghttp://2.bp.blogspot.com/-d9CLWLPb9Vk/UnNjlKm_HXI/AAAAAAAAAKg/ZftYfOR8evk/s1600/basic+corrective+waves.pnghttp://1.bp.blogspot.com/-2WELLqQnfTA/UnNlHTNilpI/AAAAAAAAAKw/3p9BM9X5iJc/s1600/double+threes+(+flat+complex).pnghttp://2.bp.blogspot.com/-VUYxUcgQLw0/UnNk14xR7BI/AAAAAAAAAKo/E3gaET6zsIw/s1600/double+threes+(+zigzag+complex).pnghttp://2.bp.blogspot.com/-d9CLWLPb9Vk/UnNjlKm_HXI/AAAAAAAAAKg/ZftYfOR8evk/s1600/basic+corrective+waves.png


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Eliott wave - Trend line forecasting

Using Paralell trend channel is one of the accuracy methods on elliott wave forecasting

technique. Elliott noted that paralell trend channels typically mark the upper and lower

boundaries of the impulsive wave. The analyst should draw them in advance to assist to

determining the target and provide clues to the future developments of the trend.

To draw the channels we need at least 3 reference points.

To predict wave 3 target, draw the line from peak of wave 1 paralells the trend line drawing

from the bottom of wave 1 and peak of wave 2.

To predict wave 5 target, draw the line from peak of wave 3 paralells the trend line drawing

from the peak of wave 2 and peak of wave 4.
http://4.bp.blogspot.com/-ui75CUCBblA/UoDfUTsb54I/AAAAAAAAAMU/kCkI-JVKoCE/s1600/Elliott+wave+-+trend+line+technique+-+wave+5+target+forecasting.pnghttp://4.bp.blogspot.com/-81Fjs9kQxaI/UoDcVOgY3GI/AAAAAAAAAMA/WD0Hej-i40I/s1600/Elliott+wave+-+trend+line+technique+-+wave+3+target+forecasting.pnghttp://4.bp.blogspot.com/-ui75CUCBblA/UoDfUTsb54I/AAAAAAAAAMU/kCkI-JVKoCE/s1600/Elliott+wave+-+trend+line+technique+-+wave+5+target+forecasting.pnghttp://4.bp.blogspot.com/-81Fjs9kQxaI/UoDcVOgY3GI/AAAAAAAAAMA/WD0Hej-i40I/s1600/Elliott+wave+-+trend+line+technique+-+wave+3+target+forecasting.png

Forex - Elliott Wave Theory

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