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Elliott Wave Theory – Application in Price Movements & Coronavirus Cases

Isfaqur RahmanPosted by
  • Elliott Wave theory asserts that crowd behavior ebbs and flows in clear trends.
  • Based on this ebb and flow, Elliott identified a certain structure to price movements in the financial markets.
  • A basic 5-wave impulse sequence and 3-wave corrective sequence in trends are explained to find out the major trend.

 

Basic Sequence

  • There are two types of waves: impulse and corrective.
  • Impulse waves, also called motive waves, move with the bigger trend or larger degree wave.
  • Corrective waves move against the larger degree wave.
  • When the larger degree wave is up, advancing waves are impulsive and declining waves are corrective.
  • When the larger degree wave is down, impulse waves are down and corrective waves are up.

In Uptrend:

In Downtrend:

Fractal Nature:

  • Elliott Wave is fractal.
  • Any impulse wave subdivides into 5 smaller waves.

Any corrective wave subdivides into three smaller waves.

Three Rules

Rule 1: Wave 2 cannot retrace more than 100% of Wave 1.

Rule 2: Wave 3 can never be the shortest of the three impulse waves.

Rule 3: Wave 4 can never overlap Wave 1.

Elliott Wave - Three Rules

Three Guidelines

In contrast to rules, guidelines should hold true most of the time, not necessarily all of the time.

Guideline 1:

When Wave 3 is the longest impulse wave, Wave 5 will approximately equal Wave 1.

Guideline 2:

The forms for Wave 2 and Wave 4 will alternate. If Wave 2 is a sharp correction, Wave 4 will be a flat correction. If Wave 2 is flat, Wave 4 will be sharp.

Guideline 3:

After a 5-wave impulse advance, corrections (abc) usually end in the area of prior Wave 4 low.

Elliott Wave - Three Guidelines

Coronavirus Cases in Bangladesh

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