Elliott Wave Theory
What is the Elliott Wave Theory?
The Elliott Wave Theory came from Mr. Ralph Nelson Elliott in the 1930s. The Elliott Wave Theory said that there are five waves in the main trend with three waves in a correction. The smaller patterns together form the bigger pattern.
Pattern Identification
Wave 1, 2, 3, 4, and 5 run in the direction of the main trend. Legs A, B, and C form a correction pattern. Wave 1, 3, and 5 are impulse wave, which makes advancement in the direction in the current trend. Wave 2 and 4 are the corrective wave that travels in the opposite direction of the main trend.
Variation of Wave 1, 3 and 5
Legs A, B, and C are corrective waves following the 5 waves in the main trend. Leg B may appear in numerous variations. Leg B may have more than one rebound peak, and when that happens Leg C may be delayed. Leg B peaks may be high altitude or low altitude peaks. Leg B may appear in the form of bottoming patterns; however, the downtrend may follow in the form of a Leg C.
Variation of Leg B
Leg C may be a short or a long wave. An additional Leg C may follow immediately. The additional Leg C may be delayed if Leg B takes longer to complete.
Variation of Leg C
A truncation wave is usually a wave five that fails to move beyond the end of wave three. A truncation happens with uptrend and downtrend. Interpretation of the truncation varies in different charts, but a truncation may indicate a reversal is due, but not always.
Benefits of the Elliott Wave Theory
The Elliott Wave enables traders to make better price predictions and improve trade decisions. Knowing that Elliott waves 1, 3, and 5 runs in the direction of the main trend, then trading in the current direction of the security may sometimes be a more favorable bet. Knowing that Elliott wave 2 and 4 are corrective waves of the current main trend, then a trader may consider profit-taking. Knowing that Legs A, B, and C are corrective waves, then a trader may consider trading in the opposite direction of the previous main trend. Knowing that the truncation pattern is forming, this may be an indication of a possible trend reversal. There are risks involved in trading. Each trader has different risk tolerance. Knowing which Elliott wave the security is currently trading in may help the trader decide which direction to trade. Trading in the direction of the waves may reduce the trader risks.
Thank you for reading!
Greenfield
Disclosure: I am not a financial advisor. This is not a recommendation, not a representation, and not a solicitation. You should do your research and come to your own decision. Investment involves significant risks. You need to understand that you may lose your money. Past performance is not an indication of future performance. Chart reading is subjective information.
What is the Elliott Wave Theory?
The Elliott Wave Theory came from Mr. Ralph Nelson Elliott in the 1930s. The Elliott Wave Theory said that there are five waves in the main trend with three waves in a correction. The smaller patterns together form the bigger pattern.
Pattern Identification
Wave 1, 2, 3, 4, and 5 run in the direction of the main trend. Legs A, B, and C form a correction pattern. Wave 1, 3, and 5 are impulse wave, which makes advancement in the direction in the current trend. Wave 2 and 4 are the corrective wave that travels in the opposite direction of the main trend.
Variation of Wave 1, 3 and 5
Legs A, B, and C are corrective waves following the 5 waves in the main trend. Leg B may appear in numerous variations. Leg B may have more than one rebound peak, and when that happens Leg C may be delayed. Leg B peaks may be high altitude or low altitude peaks. Leg B may appear in the form of bottoming patterns; however, the downtrend may follow in the form of a Leg C.
Variation of Leg B
Leg C may be a short or a long wave. An additional Leg C may follow immediately. The additional Leg C may be delayed if Leg B takes longer to complete.
Variation of Leg C
A truncation wave is usually a wave five that fails to move beyond the end of wave three. A truncation happens with uptrend and downtrend. Interpretation of the truncation varies in different charts, but a truncation may indicate a reversal is due, but not always.
Benefits of the Elliott Wave Theory
The Elliott Wave enables traders to make better price predictions and improve trade decisions. Knowing that Elliott waves 1, 3, and 5 runs in the direction of the main trend, then trading in the current direction of the security may sometimes be a more favorable bet. Knowing that Elliott wave 2 and 4 are corrective waves of the current main trend, then a trader may consider profit-taking. Knowing that Legs A, B, and C are corrective waves, then a trader may consider trading in the opposite direction of the previous main trend. Knowing that the truncation pattern is forming, this may be an indication of a possible trend reversal. There are risks involved in trading. Each trader has different risk tolerance. Knowing which Elliott wave the security is currently trading in may help the trader decide which direction to trade. Trading in the direction of the waves may reduce the trader risks.
Thank you for reading!
Greenfield
Disclosure: I am not a financial advisor. This is not a recommendation, not a representation, and not a solicitation. You should do your research and come to your own decision. Investment involves significant risks. You need to understand that you may lose your money. Past performance is not an indication of future performance. Chart reading is subjective information.
