Elliott Wave Theory – A Brief Introduction

A Bit of History

In the early 1930s Ralph Nelson Elliott began an in-depth study of stock market price data from the previous 75 years. An accountant by trade, he had already lived as an expat in Mexico, run a successful consulting business in New York, served as Chief Accountant for Nicaragua as an appointee of the US State Department, and written books on two rather disparate topics: tea room management, and the future of Latin America. He had also, in 1929 at the age of 58, declared bankruptcy as a result of medical bills from a gastrointestinal illness contracted in Central America. That illness had left him unable to work for a period of time, compounding his financial distress. The stock market crash did not help the situation. 

Looking for a fresh start, he created and studied charts showing price movements, over various time frames, for the Dow Jones Industrial Average. He was looking for patterns. He already held the idea that human behavior was driven in large part by the movements between optimism and pessimism, and that those movements occurred in cycles. Since stock markets were driven in part by sentiment, could those cycles apply to the stock market? Could they be identified? And did they have predictive value? 

Over time, Elliott determined that price movements occurred in waves. For a more in depth look at the waves, see Elliott Wave Theory – Understanding the Waves

Fractal Nature and Degree

fractal occurring in nature
romanesco broccoli
elliott wave theory
romanesco broccoli from glutenfreeyummy.com

Fractals are geometric structures that appear the same whether you zoom in or zoom out. They occur everywhere in nature: the shape of a coastline, the structure of a branching tree, the way romanesco broccoli is made (see image above). The overall structure is repeated in the smaller degree structures from which it is made.

According to Elliott, in a stock chart the basic pattern is 5 waves in the dominant direction (1 – 5 in dark black below), then 3 waves in the corrective direction (a – c in red). But these waves do not move in a straight line. At any degree, or at any time frame, the same 3 or 5-wave pattern can be found. In the image below you can see that dominant wave 1 is divided into a smaller 5-wave movement. Wave 2 is further divided into a smaller 3-wave movement, and so on. These sub waves could also be further subdivided. When you look at a long-term price chart, perhaps a 10 or 20 year chart, and see the overall wave pattern, you can then zoom in and look at one year or one month within that time frame, and see a similar pattern within the larger one. At any time frame (or degree), you will find similar wave structures. Thus, we can say that the charts have a fractal nature. 

Elliott 5-wave structure
Elliott 5-Wave Structure with Sub-Waves from babypips.com

Fibonacci Ratios and Retracements

The series of numbers 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144 and so on, where each number is the sum of the 2 previous numbers, is called the Fibonacci series, and is credited to the 12th century Italian mathematician Fibonacci (although there is evidence it had existed in Indian mathematics at least 500 years prior). Fibonacci numbers get interesting when you divide each one by the previous one. For example, 1 / 1 = 1, 2 / 1 = 2, 3 / 2 = 1.5.

If you keep dividing, you notice that the quotients begin oscillating around, and getting closer to, 1.618. 

1, 2, 1.5, 1.666…, 1.6, 1.625, 1.615…, 1.619…, 1.6176…, 1.6181…, 1.6179…

If that number sounds familiar, you may recall it is the golden ratio. The golden ratio occurs throughout nature, from various proportions in the human body, to the degree of curvature of a hurricane or the structure of a beehive. It is used extensively in art and architecture. A rectangle that respects the golden ratio is quite pleasing to the eye.

golden ratio
Elliott Wave Theory
hurricane conforming to the golden ratio from mathnasium.com

Similarly, you can divide each number by the next one, and the quotients will approach 0.618. Or divide each number by the one that occurs 2 positions later, and the quotients will approach 0.382. And dividing each number by the one that occurs 3 positions later, results in quotients approaching 0.236.

Elliott found that these ratios occurred in charts for the Dow Jones Industrial Average frequently. For example, using the wave image earlier in this article, wave 2 down may “retrace” 38.2% of the distance of wave 1 up.

In the chart below, the price has moved from 0 to 100% over the “Timespan” shown. The movement was in 5 waves….up to 38.2%, back down to the 23.6% level, up to 50% (not a Fibonacci ratio, but a ratio that is commonly seen in price movements), back to 38.2% and then on up in a strong 5th wave. Obviously this is much easier to measure in hindsight!

Elliott 5-wave structure
5-wave stock chart from warriortrading.com

Universal Laws of Nature?

Elliott came to believe his waves represented universal laws that could be applied to everything, including human behavior. This belief culminated in the writing and publication of Nature’s Law – The Secret of the Universe in 1946. Although this book mentions a variety of areas where the laws can be applied, the focus was on finding the probable direction, degree, and timing of stock price movements.

Does it Work?

Elliott Wave Theory is a useful tool when predicting market direction and, to a certain extent, timing. It seems to be more reliable when used to predict the broad market indices such as the Dow Jones Industrial Average or the S&P 500 Index. It is less reliable when applied to individual stocks.

It’s relatively easy to learn the basics, but to use it proficiently in trading, one needs a fairly comprehensive grasp of the subject, and many people give up before they get there. The biggest challenge is in how to apply it. For example, even if you figure out which wave the market is currently in, you still need to determine the amplitude of the wave and the timing for when it will change direction. Experienced Elliott Wave technicians will seek confirmation from monthly, weekly, and daily charts before predicting trends. Day traders would look at the hour and minute charts to figure out just where along the wave structure the market actually is, where it will go next, and when. A gifted technician can find the more probable outcomes and that can give them an edge. 

References

Wikipedia.com

Investopedia.com

Protrader.org

Thismatter.com

Elliottwavetrader.net

Disclaimer

All trademarks referenced are the property of their respective owners. Other trademarks and trade names may be used in this document to refer to either the entity claiming the marks and names or their products. MarketXLS disclaims any proprietary interest in trademarks and trade names other than its own, or affiliation with the trademark owners.

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein. The article is written for helping users collect the required information from various sources deemed to be an authority in their content. The trademarks if any are the property of their owners and no representations are made.

Verelq News |
13.04.2024

alexistogel macau

alexistogel

link alexistogel

alexistogel slot

situs alexistogel

alexistogel rtp

situs alexistogel

link alternatif alexistogel

alexistogel gacor

bandar alexistogel

alexistogel

alexistogel

alexistogel 4d

alexistogel terpercaya

alexistogel gacor

alexistogel

alexistogel 4d

alexistogel

alexistogel

slot alexistogel

alexistogel gacor

alexistogel terpercaya

agen togel online

link alexistogel

alexistogel toto

alexistogel resmi

alexistogel

alexistogel rtp

situs alexistogel

bandar alexistogel

alexistogel

alexistogel slot

link alexistogel

agen alexistogel

alexistogel

alexistogel macau

alexistogel

alexistogel

alexistogel

alexistogel slot

alexistogel

alexistogel terpercaya

alexistogel togel slot

alexistogel

alexistogel gacor

alexistogel

alexistogel terpercaya

link alternatif alexistogel

alexistogel online

alexistogel

alexistogel gampang menang

alexistogel 4d

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

alexistogel

syair togel

alexistogel

شرط بندی پرسپولیس شرط بندی استقلال شرط بندی روی تراکتورسازی تبریز شرط بندی روی سپاهان شرط بندی رئال مادرید بارسلونا شرط بندی شرط بندی psg سایت شرط بندی جام جهانی شرط بندی جام جهانی 2026 سایت شرط بندی جام جهانی 2026 بازی انفجار رایگان سایت انفجار ضریب بالا بهترین سایت شرط بندی فارسی شرط بندی بدون فیلتر شرط بندی بازی رولت شرط بندی پوکر شرط بندی مونتی شرط بندی سنگ کاغذ قیچی شرط بندی بلک جک کرش رویال بت پاسور شرط شرط بندی تخته نرد آنلاین انفجار 2 بت شرط بندی بازی اسلات شرط بندی بازی پوپ سایت سامان بت ریور پوکر 2024 سایت 4030bet ورود به بازی انفجار دنس بت شرط بندی انفجار دنس آموزش بازی پوکر سایت شرط بندی 123 بهترین شرط بندی بهترین سایت شرط بندی انفجار اپلیکیشن بازی انفجار دانلود بازی انفجار انفجار بازی ربات بازی انفجار کازینو آنلاین ایرانی انفجار پولساز ورود به بازی انفجار بازی انفجار با شارژ 10 تومن سایت bet betyek وان ایکس برو آدرس سایت بت یک سایت دوست دختر اونلی فنز فارسی پیدا کردن دوست دختر ورود به ریور پوکر پدرام مختاری پویان مختاری نازنین همدانی مونتیگو داوود هزینه بیوگرافی آیسان اسلامی بیوگرافی دنیا جهانبخت سایت رسمی حسین تهی بیوگرافی کوروش وانتونز سایت آرتا وانتونز رها وانتونز بیوگرافی ربکا قادری سحر قریشی بیوگرافی تتلو بیوگرافی مهدی طارمی الناز شاکردوست سایت عادل فردوسی پور بیوگرافی نیلی افشار بیوگرافی محمدرضا گلزار سایت armin2afm بیوگرافی شادمهر عقیلی بیوگرافی سردارآزمون بیوگرافی علیرضا بیرانوند بیوگرافی رامین رضاییان وریا غفوری بیوگرافی علی دایی بیوگرافی پوریا پوتک مدگل سایت حصین بیوگرافی صدف طاهریان فرشاد سایلنت بیوگرافی آریا کئوکسر بیوگرافی sogang بیوگرافی میا پلیز بیوگرافی مهراد هیدن سایت رسمی سهراب ام جی بیوگرافی علیرضا جی جی بیوگرافی بهزاد لیتو اشکان فدایی بیوگرافی رضا پیشرو بیوگرافی گلشیفته بیوگرافی هیپ هاپولوژیست بیوگرافی سارن بیوگرافی آدام مرادی بیوگرافی محمد هلاکویی بیوگرافی علی حسنی سایت رسمی علی حسنی بیوگرافی ساسی خواننده بیوگرافی ابی باربد معصومی حسینی فایننس بیوگرافی امیرحسین نام آور بیوگرافی امین فردین بیوگرافی فرزاد وجیهی سایت سیب بت سایت jetbet آدرس جدید بت فوروارد وان ایکس بت سایت abt90 بازی انفجار سایت شرط بندی فاز بت بهترین سایت شرط بندی انفجار ورود به آلپاری آلپاری فارکس آدرس بروکر آلپاری بدون فیلتر ثبت نام در بروکر آلپاری فارسی صرافی کوکوین ربات فارکس بهترین سایت تتر

alexistogel toto online

bandar alexistogel

alexistogel bandar gacor

alexistogel link

alexistogel online

alexistogel bandar togel

link alternatif alexistogel

alexistogel

alexistogel

alexistogel

alexistogel daftar

alexistogel toto macau

alexistogel bandar macau

alexistogel slot

alexistogel agen slot

alexistogel

situs alexistogel

alexistogel

alexistogel slot

alexistogel

alexistogel

alexistogel

alexistogel bandar slot

alexistogel

Alexistogel Toto Macau

alexistogel

bandar alexistogel

alexistogel slot

alexistogel link alternatif

alexistogel macau

alexistogel

alexistogel toto macau

slot alexistogel

alexistogel bandar togel

alexistogel

alexistogel

alexistogel rtp

alexistogel

alexistogel slot

alexistogel

alexistogel

alexistogel

alexistogel terpercaya

daftar alexistogel

alexistogel online

rtp alexistogel

alexistogel slot

alexistogel gacor

link alternatif alexistogel

alexistogel login

alexistogel

alexistogel slot dana

agen togel online

bandar togel online

alexistogel rtp

alexistogel slot

alexistogel daftar

slot online dana

RTP LIVE

Bandar Toto Macau

Situs Slot Gacor

bandarbola855 resmi

bandarbola855 gacor

bandarbola855 slot

link bandarbola855

bandarbola855 bola slot

bandarbola855 rtp

bandarbola855 slot online

bandarbola855 link

bandarbola855 bandar

bandarbola855 slot terpercaya

bandarbola855

bandarbola855 slot

bandarbola855 terpercaya

bandarbola855 online

slot bandarbola855

bandarbola855 slot

bandarbola855 daftar

bandarbola855 link

bandarbola855

bandarbola855

bandarbola855

bandarbola855 slot

bandarbola855

iosbet

iosbet

link iosbet

slot online iosbet

iosbet link login

slot iosbet

iosbet gacor

iosbet slot

iosbet

slot iosbet

agen iosbet

bandar iosbet

iosbet

iosbet link

bandar iosbet gacor

iosbet

iosbet

liatogel

bandar liatogel

login liatogel

live draw hk liatogel

liatogel slot online gacor

liatogel totomacau

liatogel link

slot gacor

daftar slot online

bandar slot dana

slot ovo

slot gopay