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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » Elliott Wave Principle and Basic Tenets

Elliott Wave Principle and Basic Tenets

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1Elliott Wave Principle and Basic Tenets Empty Elliott Wave Principle and Basic Tenets Mon Jan 13, 2020 3:39 am


Equity Analytic
Equity Analytic
[ltr]Elliott Wave Principle and Basic Tenets
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The Wave Principle is governed by man’s social nature, and since he has such a nature, its expression generates forms. As the forms are repetitive, they have predictive value.
Sometimes the market appears to reflect outside conditions and events, but at other times it is entirely detached from what most people assume are causal conditions. The reason is that the market has a law of its own. It is not propelled by the external causality to which one becomes accustomed in the everyday experiences of life. The path of prices is not a product of news. Nor is the market the cyclically rhythmic machine that some declare it to be. Its movement reflects a repetition of forms that is independent both of presumed causal events and of periodicity.
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The market’s progression unfolds in waves. Waves are patterns of directional movement. More specifically, a wave is any one of the patterns that naturally occur, as described in the rest of this chapter.
The Five Wave Pattern
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In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled 2 and 4, as shown in 
figure 1-1. The two interruptions are apparently a requisite for overall directional movement to occur.
Elliott noted three consistent aspects of the five-wave form. They are: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest wave; wave 4 never enters the price territory of wave 1.
R.N. Elliott did not specifically say that there is only one overriding form, the “five-wave” pattern, but that is undeniably the case. At any time, the market may be identified as being somewhere in the basic five-wave pattern at the largest degree of trend. Because the five-wave pattern is the overriding form of market progress, all other patterns are subsumed by it.
[size=32]1.3 Wave Mode[/size]
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There are two modes of wave development: motive and corrective. Motive waves have a five-wave structure, while corrective waves have a three-wave structure or a variation thereof. Motive mode is employed by both the five-wave pattern of Figure 1-1 and its same-directional components, i.e., waves 1, 3 and 5. Their structures are called “motive” because they powerfully impel the market. Corrective mode is employed by all countertrend interruptions, which include waves 2 and 4 in Figure 1-1. Their structures are called “corrective” because each one appears as a response to the preceding motive wave yet accomplishes only a partial retracement, or “correction,” of the progress it achieved. Thus, the two modes are fundamentally different, both in their roles and in their construction, as will be detailed throughout this chapter.
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Elliott Wave Principle and Basic Tenets 111

Figure 1-1
The Complete Cycle
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One complete cycle consisting of eight waves, then, is made up of two distinct phases, the five-wave motive phase (also called a “five”), whose subwaves are denoted by numbers, and the threewave corrective phase (also called a “three”), whose subwaves are denoted by letters. Just as wave 2 corrects wave 1 in Figure 1-1, the sequence A, B, C corrects the sequence 1, 2, 3, 4, 5 in Figure 1-2.

Elliott Wave Principle and Basic Tenets 211

Figure 1-2
Compound Construction
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When an initial eight-wave cycle such as shown in Figure 1-2 ends, a similar cycle ensues, which is then followed by another five-wave movement. This entire development produces a fivewave pattern of one degree (i.e., relative size) larger than the waves of which it is composed. The result is shown in Figure 1-3 up to the peak labeled (5). This five-wave pattern of larger degree is then corrected by a three-wave pattern of the same degree, completing a larger full cycle, depicted as Figure 1-3.
As Figure 1-3 illustrates, each same-direction component of a motive wave (i.e., wave 1, 3 and 5), and each full-cycle component (i.e., waves 1 + 2, or waves 3 + 4)of a cycle, is a smaller version of itself.
It is neccessary to understand a crucial point: Figure 1-3 not only illustrates a larger version of Figure 1-2, it also illustrates Figure 1-2 itself, in greater detail. In Figure 1-2, each subwave 1, 3 and 5 is a motive wave that must subdivide into a "five," and each subwave 2 and 4 is a corrective wave that must subdivide into a "three." Waves (1) and (2) in Figure 1-3, if examined under a "microscope," would take the same form as waves and . Regardless of degree, the form is constant. We can use Figure 1-3 to illustrate two waves, eight waves or thirty-four waves, depending upon the degree to which we are referring.
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Elliott Wave Principle and Basic Tenets 311 
Figure 1-3

2Elliott Wave Principle and Basic Tenets Empty Elliott Wave and Essential Design Tue Jan 14, 2020 9:28 pm


Stock Trader
[ltr][size=40]Elliott Wave and [/size][size=32]Essential Design[/size][/ltr]
[ltr]توصيات العملات[/ltr]
[ltr]Now observe that within the corrective pattern illustrated as wave in Figure 1-3, waves (A) and (C), which point downward, are each composed of five waves: 1, 2, 3, 4 and 5. Similarly, wave (B), which points upward, is composed of three waves: A, B and C. This construction discloses a crucial point: Motive waves do not always point upward, and corrective waves do not always point downward. The mode of a wave is determined not by its absolute direction but primarily by its relative direction. Aside from five specific exceptions, which will be discussed later in this chapter, waves divide in motive mode (five waves) when trending in the same direction as the wave of one larger degree of which it is a part, and in corrective mode (three waves or a variation) when trending in the opposite direction. Waves (A) and (C) are motive, trending in the same direction as wave . Wave (B) is corrective because it corrects wave (A) and is countertrend to wave . In summary, the essential underlying tendency of the Wave Principle is that action in the same direction as the one larger trend develops in five waves, while reaction against the one larger trend develops in three waves, at all degrees of trend.[/ltr]

[ltr]gold signals[/ltr]
[ltr]توصيات الذهب[/ltr]
[ltr]The phenomena of form, degree and relative direction are carried one step further in Figure 1-4. This illustration reflects the general principle that in any market cycle, waves will subdivide as shown in the table below.[/ltr]
[ltr]Number of Waves at Each Degree[/ltr]
 [ltr]Motive +[/ltr][ltr]Corrective[/ltr][ltr] = Cycle[/ltr]
 [ltr](Impulse) [/ltr][ltr](Zigzag)[/ltr] 
[ltr]Largest waves[/ltr][ltr]  1[/ltr][ltr]  1[/ltr][ltr]   2[/ltr]
[ltr]Largest subdivisions [/ltr][ltr]  5[/ltr][ltr]  3[/ltr][ltr]   8[/ltr]
[ltr]Next subdivisions [/ltr][ltr] 21[/ltr][ltr]13[/ltr][ltr]  34[/ltr]
[ltr]Next subdivisions [/ltr][ltr] 89[/ltr][ltr]55[/ltr][ltr]144[/ltr]
[ltr]gold signals[/ltr]
[ltr]As with Figures 1-2 and 1-3, this larger cycle in Figure 1-4 automatically becomes two subdivisions of the wave of next higher degree. As long as progress continues, the process of building to greater degrees continues. The reverse process of subdividing into lesser degrees apparently continues indefinitely as well. As far as we can determine, then, all waves both have and are component waves.[/ltr]
[ltr]gold signals[/ltr]
[ltr]Why 5-3?توصيات الذهب[/ltr]
[ltr]Elliott himself never speculated on why the market’s essential form is five waves to progress and three waves to regress. He simply noted that that was what was happening. Does the essential form have to be five waves and three waves? Think about it and you will realize that this is the minimum requirement for, and therefore the most efficient method of, achieving both fluctuation and progress in linear movement. One wave does not allow fluctuation. The fewest subdivisions to create fluctuation is three waves. Three waves (of unqualified size) in both directions would not allow progress. To progress in one direction despite periods of regress, movements in that direction must be at least five waves, simply to cover more ground than the intervening three waves. While there could be more waves than that, the most efficient form of punctuated progress is 5-3, and nature typically follows the most efficient path.[/ltr]
[ltr]Wave Degree: Notation and Nomenclature[/ltr]
[ltr]توصيات الذهب[/ltr]
[ltr]All waves may be categorized by relative size, or degree. The degree of a wave is determined by its size and position relative to component, adjacent and encompassing waves. Elliott named nine degrees of waves, from the smallest discernible on an hourly chart to the largest wave he could assume existed from the data then available. He chose the following terms for these degrees, from largest to smallest: Grand Supercycle, Supercycle, Cycle, Primary, Intermediate, Minor, Minute, Minuette, Subminuette. Cycle waves subdivide into Primary waves that subdivide into Intermediate waves that in turn subdivide into Minor waves, and so on. The specific terminology is not critical to the identification of degrees, although out of habit, today’s practitioners have become comfortable with Elliott’s nomenclature.[/ltr]
[ltr]gold signals[/ltr]
[ltr]توصيات الذهب[/ltr]
[ltr]When labeling waves on a graph, some scheme is necessary to differentiate the degrees of waves in the market’s progression. We have standardized a sequence of labels involving numbers and letters, as shown in the table below, which has several virtues heretofore lacking. The progression is infinite in both directions. It is based upon an easily memorized repetition. Motive waves are labeled with alternating sets of three Roman numerals followed by three Arabic numerals. The corrective-wave labels similarly alternate between three upper-case letters and three lower-case letters. Roman numerals always go with lower case letters, and Arabic numbers always go with upper case letters. Finally, all Roman numerals are lower case below Minor degree and upper case above Primary degree, so that a quick glance at a chart reveals some perspective on its time scale. (Several charts in this book deviate from this standard, as they were constructed prior to its adoption.)[/ltr]
[ltr]توصيات الفوركس[/ltr]
[ltr]We may also refer to waves by their degree number. A wave of Cycle degree is a wave of degree six. The largest degree in progress, dating from the Stone Age, is degree zero (Epochal degree), so these numbers should serve all analytical endeavors. The most desirable form for scientific work would be 11, 12, 13, 14, 15, etc., with subscripts denoting degree, but it is difficult to read a large number of such notations on a graph. The above standard provides for rapid visual orientation.[/ltr]
[ltr]It is important to understand that these names and labels refer to specifically identifiable degrees of waves. By using a nomenclature, an analyst can identify precisely the position of a wave in the overall progression of the stock market, much as longitude and latitude are used to identify a geographical location. To say, "The Dow Jones Industrial Average is in Minute wave of Minor wave 1 of Intermediate wave (3) of Primary wave of Cycle wave I of Supercycle wave (V) of the current Grand Supercycle" is to identify a specific point along the progression of market history.[/ltr]
[ltr]توصيات الفوركس[/ltr]
[ltr]All waves are of a specific degree. Yet it may be impossible to identify precisely the degree of developing waves, particularly subwaves at the start of a new wave. Degree is not based upon specific price or time lengths but upon form, which is a function of both price and time. Fortunately, the precise degree is usually irrelevant to successful forecasting since it is relative degree that matters most. To know a major advance is due is more important than its precise name. Later events always clarify degree.[/ltr]
[ltr]توصيات العملات[/ltr]
[ltr]More on[/ltr]

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