Elliott Wave Theory Basics
R. N. Elliott developed his wave theory in 1934. It's a method for describing stock market moves.
Elliott Wave Technical Analysis guidelines and rules applied to the charts, and can enable you to trade and invest successfully through a better Comprehension of the market to maximize opportunity and minimize risk.
Under the Elliott Wave Principle, each market decision is equally produced by meaningful information and generates meaningful information. Each trade, while at once a result, enters the cloth of the market and, by communiing transactional data to shareholders, joins the chain of causes of others' behavior.
According to the Elliott Wave Theory, stock prices often move at a predetermined number of waves. Elliott believed that the market moved in five distinct waves on the upside (Motive or even Impulse Wave) and also three distinct on the downside (Corrective Wave).
Motive wave structure is denoted by amounts (1-2-3-4-5) and, corrective wave structure is denoted by letters (a-b-c).
Market cycles are composed of Motive Wave and Corrective Wave, Thus one complete cycle consists of eight waves.
Figure 1
Elliott Wave counting and degrees
An important feature of Elliott Wave Theory is that they are fractal in character. 'Fractal' means market structure is built from comparable patterns on scales that are smaller or larger. Therefore, we can count the tide on a market chart in addition to short-term hourly market chart.
Figure Two
Elliot Wave theory egorizes waves with comparative size, or degree. Elliott picked the titles listed below to tag these degrees, from largest to smallest, and discerned nine degrees of waves: Grand Supercycle Supercycle Cycle Primary Intermediate Minor Minute Minuette Sub-Minuette The major waves determine the major tendency of the market, and waves determine minor tendencies.
Rules for Wave Count
Based on the market pattern, we can identify' where we are' in duration of tide count. But as the market pattern is relatively simplistic, there are several principles for valid counts: Wave 2 shouldn't break beneath the beginning of Wave 1; Wave 3 must not be the shortest tide among Wave 1, 5 and 3; Wave 4 shouldn't overlap with Rainbow 1, except for wave 5, 1, a or c of a greater degree. Rule of Alternation: 4 and Wave 2 must unfold in two wave forms.