If volume during the 5th wave is as high as the 3rd, expect an extended 5th wave. Wave 3 almost always has the greatest volume.Waves 2 are often simple corrections while waves 4 are often complex corrections.If a wave 2 retracement is deep, then wave 4 is often shallow. But this article will add a few Elliott Wave theory examples of guidelines: Mentioning them all does not fit within the scope of this article. There are many other guidelines that help Elliott Wave analysts create an Elliott Wave strategy. Wave 4 does not overlap with the price territory of wave 1 – with the exception of leading or ending diagonals.Wave 3 cannot be the shortest of the three impulse waves (waves 1, 3, and 5).Wave 2 never retraces more than 100% of wave 1.These guidelines and rules help Elliott Wave analysts make more accurate analyses, predictions, and decisions. There are dozens of guidelines but only 3 main rules. Let’s review the main rules and characteristics per wave. Primary: a few months to a couple of years.
Cycle: one year to several years (or even several decades under an Elliott Extension).Supercycle: multi-decade (about 40–70 years).The classification of a wave can vary, but Elliott Wave analysts generally agree on these degrees (with approximate duration): Basically, these patterns self repeat on all degrees. These wave patterns occur on all time frames, including lower and higher ones. Elliott’s essay, “The Basis of the Wave Principle”, October 1940. Once the 5 waves and 3 wave patterns are completed on the one-time frame, then the sequence begins again on a higher time frame. So, in those 5 sub-waves, there are a total of 21 waves within those sub-waves. In waves 2 and 4, there are usually two sets of a 3 wave ABC correction (6 waves in total). In waves 1, 3, and 5, there are another 5 sub-waves (15 waves in total). In the 3 wave pattern: waves A and C can be impulsive against the trend.Waves 2 and 4 are corrective against the trend In the 5 wave pattern: waves 1, 3, and 5 are impulsive with the trend.This means that there are four combinations possible: The impulse and corrective phase can be both bullish and bearish. Or in some cases, a corrective phase can follow a corrective phase and an impulsive phase can follow a corrective phase. Sometimes motive and corrective phases can endure for a while. The phases usually alternate but it is not a must. The market is either in a motive phase or corrective phase. Slow speed = correction, range, sideways, corrective phase.Quick speed = impulse, momentum, motive phase.Price action can behave in the following ways: The market phases or waves are characterized by two factors: direction and speed. They use this information to forecast trends and price patterns on the chart. The Elliott Wave Principle was discovered and formulated by Ralph Nelson Elliott.Įlliott Wave traders use the Elliott Wave Theory to understand these market price cycles or phases. The basic idea behind the Elliott Wave Theory is that crowd psychology creates phases of market optimism and pessimism. The Elliott Wave Theory is also called the Elliott Wave Principle.
It allows traders to analyze price movements in the financial markets. The Elliott Wave Theory is a form of technical analysis.
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