Elliott wave principle key to market behavior pdf download

He proposed that market prices unfold in specific patterns, which practitioners today call “Elliott waves”, or simply “waves”. Elliott elliott wave principle key to market behavior pdf download that “because man is subject to rhythmical procedure, calculations having to do with his activities can be projected far into the future with a justification and certainty heretofore unattainable. The empirical validity of the Elliott Wave Principle remains the subject of debate.

Elliott’s essay, “The Basis of the Wave Principle,” October 1940. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3. Corrective waves subdivide into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse. Motive waves always move with the trend, while corrective waves move against it. Note the lowermost of the three idealized cycles. In the first small five-wave sequence, waves 1, 3 and 5 are motive, while waves 2 and 4 are corrective.

This signals that the movement of the wave one degree higher is upward. It also signals the start of the first small three-wave corrective sequence. After the initial five waves up and three waves down, the sequence begins again and the self-similar fractal geometry begins to unfold according to the five and three-wave structure which it underlies one degree higher. The completed motive pattern includes 89 waves, followed by a completed corrective pattern of 55 waves. Each degree of a pattern in a financial market has a name. Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative.

The previous trend is considered still strongly in force. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts. Corrections are typically harder to identify than impulse moves. In wave A of a bear market, the fundamental news is usually still positive. Most analysts see the drop as a correction in a still-active bull market. Wave two corrects wave one, but can never extend beyond the starting point of wave one.

Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and “the crowd” haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61. Prices reverse higher, which many see as a resumption of the now long-gone bull market. Those familiar with classical technical analysis may see the peak as the right shoulder of a head and shoulders reversal pattern.