His invention was so perfect that he came up with 6 cardinal rules to help traders in identifying and validating the Elliott waves.īy adhering to the rules, we can easily identify the perfect waves and use them in making our trading decisions. Similarly, after the first phase (wave I) ends, a reversal uptrend (wave II) forms. The wave marked “I” is the main trend while wave “II” is the reversal trend.Ī complete 8-wave downtrend looks like this:
![advanced get elliott wave advanced get elliott wave](https://investorshub.advfn.com/uimage/uploads/2019/2/15/xsvqjVYST_Feb_15_Chart__180_Day_Daily.png)
In a nutshell, an Elliott wave Theory is said to be complete once all the 8 waves have been formed. So, a complete uptrend as per the principle would look like this: This time, the wave is made up of 3 smaller waves known as “a”, “b”, and “c.” Once the 5-wave phase has completed, there is usually a reversal wave that opposes it. Because of this, the prices move upwards. During an uptrend, like the above, waves 1, 3 and 5 (impulse waves) are larger than waves 2 and 4 (corrective waves). Ī graphical representation of the basic 5 Elliott wave pattern looks like this:Īs we can see, Elliott found out that the markets move in alternating waves. Waves 2 and 4 move against the main trend and are known as the Corrective waves. They are collectively known as the Impulse waves. Waves 1, 3 and 5 move in the direction of the main trend. The first phase of the Elliott wave theory trading principle consists of 5 waves. In short, once the main trendis complete, a reversalis expected. The “5” wave usually represents the trending phase, while the “3” phase is a reversal of the trend. Let’s see how this principle works: Elliott Waves BasicsĪccording to this theory, a trending market moves in a 5-3 wave pattern. Upon further observation, Elliott concluded that these cycles resulted from two factors:įrom these observations, Elliott was able to formulate an outstanding trading method that remains one of the most powerful trading approaches to this day. In the same way, during a downtrend, there will be large downward movements by price accompanied by smaller upward movements.Ĭollectively, these alternating price movements create a trend. In short, during an uptrend, there will be large upward movements that will be occasionally opposed by smaller downward movements. Rather, they follow some repetitive cycles.Įlliott’s conclusion was that the prices move in alternating waves. It was from this analysis that Elliott discovered and was able to conclude that the financial markets do not move randomly. Back in the day, he sat down and analyzed the data from the stock market dating 75 years back.
![advanced get elliott wave advanced get elliott wave](https://patternswizard.com/wp-content/uploads/2020/08/elliottwave.png)