Elliott Wave Theory

Elliott Wave Theory explains market behavior by suggesting that a predictable structure evolves as stocks move through a sequence of impulse and corrective movements. There are a number of presumptions that are critical to the Elliot Wave, but essentially they involve the premise that (1) traders embrace symmetry, (2) traders recognize and anticipate patterns, (3) wave patterns are predictable, and (4) wave formations are standard and develop in initial, intermediate, and extensional phases of movement. Essentially, market cycles are made up of differing wave patterns that can be identified and as such, traders can use these formations to discern entry and exit points.

Wave formations, whether they occur on an intraday, daily, weekly, or monthly time period form in a similar pattern. As you can see in the graphic below, this pattern involves five waves on the upward (or impulse) side of the wave, and three in downward (or correction) phase of the wave.

Figure 1

Table of Contents

- Waves Inside a Wave
- Wave Count Principles
- Wave Types in Impulse Wave
- Wave Forms inside Corrective Wave
- Conclusion

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