Elliot Wave Technique
Basically you need to know 4 steps below :-
1-Basic Theory
2-Pattern
3-Channeling
4-Fibonacci ratios
Part 1 – Basic Theory
According to physical law: “Every action creates an equal and opposite reaction”. The same goes for the financial markets. A price movement up or down must be followed by a contrary movement, as the saying goes: “What goes up must come down”( and vice versa).
The wave is a movement in the market, either up or down. The size of the wave depends
upon the period of time that is being analyzed.Basically, market cycles are composed of two major types of Waves, “Impulse Wave” and “Corrective Wave“.
Trends show the main direction of prices, while corrections move against the trend.
A. The Impulse Wave:
It is a wave that moves in the direction of the main trend of the market. Every impulse wave can be sub-divided into a 5 – wave structure (1-2-3-4-5).
The Impulse wave formation has five distinct price movements, three in the direction of the trend (1, 3, and 5) and two against the trend (Corrections – 2 and 4).
Wave 2 and 4 in the above picture are corrections.
An impulse wave formation followed by a corrective wave, form an Elliott wave degree, consisting of trend and counter trend. Although the patterns pictured above are bullish, the same applies for bear markets, where the main trend is down.
B. The Corrective Wave:
It is a wave that moves counter to the direction of the main trend of the market. Every corrective wave can be sub-divided into a 3 – wave structure (a-b-c).
An important feature of the principle is that it is “Fractal” in nature. “Fractal” means market structure is built from similar patterns on a larger or smaller scales. Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart.
The corrective wave formation normally has 3-wave, in some cases five or more distinct price movements, two in the direction of the main correction ( A and C) and one against it (B).
Part 2, we will be discussing on a “Pattern” in elliot wave technique.
Tags: Elliot Wave Technique
