Elliott Wave Theory – Understanding The Waves

Elliott Wave Theory was developed by Ralph Nelson Elliott that is used to describe the stock price movements. It is based on participants’ behavior on the hypothesis that stock prices move between optimism and pessimism of all market participants’ psychology. Thus, wide swings in the participants’ psychology make stock prices move in a particular pattern/trend.

It is a subjective theory where not all traders interpret the theory the same way, and it identifies several different types of waves. The Fundamental Concept is that stock prices move in clear trends, classified into Dominant trends (Five wave patterns) and Corrective trends (Three wave patterns).

The Fundamental Concept

Elliott Wave theory advocates that stock prices move in clear trends. These trends can be classified in mainly two parts:

A. Dominant trend (Five wave pattern)

B. Corrective trend (Three wave pattern)

Dominant Trend (Five Wave Pattern)

The Dominant trend consists of five waves which can be classified in either direction, up or down. The waves are known as Impulsive waves when they are up and then advancing or down and declining. The waves are known as Corrective waves when up and then declining or down and advancing.

The dominant trend of each wave has its characteristic; when markets are rising the wave 1 is a weak rally with only a few traders participating in the market. It mainly happens because fundamental news is still negative, and above all, previous trends which were declining are still considered vital to be in force.

Wave 1

Wave 2: Once wave 1 is over, wave 2 is a very vicious (sharp) sell-off. But wave 2 never outstretches the starting point of wave 1. So wave 2 ends without making new lows, and prices turn for another rally.

Wave 3

Wave 3: There is a slow rally in the initial stage of wave 3 as market participants are not convinced about the rally. One can see many short positions are there in the market and get squared off as and when markets rally and finally close when the top of wave 1 is crossed. When the top of wave 1 is crossed, market participants are convinced about the rally. It is when there is sudden buy-side interest in the market. Wave 3 is the largest and most powerful wave of the dominant trend.

Wave 4 when markets are rising

Wave 4: When traders who were long from the lower levels take profits, wave 3 finally ends, and profit-taking starts. Wave 4 is just a correction on volume lesser than wave 3. The majority of the market participants are convinced that the trend is up even while profit-taking is on.  

Wave-5 when markets are rising

Wave 5: Prices make new highs above wave 3, but volumes are usually lesser than that in wave 3. There is a lack of strength in wave 5 compared to the one witnessed in wave 3, but markets finally top out and enter a new phase.

When Markets Are Declining

Wave 1 is a minor correction with only a few traders participating in the market. 

DLOuwz-Yvow2CE” alt=”Wave 1″/>

Wave 2 is a strong rally after the 1st wave is over. However, it never extends beyond the starting point of wave 1. Thus, wave 2 finally ends without making new highs, and prices start declining again.

Wave 2

Wave 3: Initially, there is a slow decline as market participants are not convinced about the decline. Many buy-side positions are there in the market, and these get squared off as and when markets decline, these positions are closed when the bottom of wave 1 is crossed. When the bottom of wave 1 has crossed, market participants are convinced about the decline, which leads to a sudden sell-side interest in the market. Wave 3 is known to be the largest and most powerful wave of the dominant trend.

Wave 3

Wave 4: Wave 3 ends as traders who were short from the higher levels take profit; hence profit taking starts. Wave 4 is a clear pull back on lesser volume than wave 3. While profit-taking is on, the majority of the market participants are convinced that trend is down. There are two schools of thought here to trade Wave 4. One is to sell on a rally if the potential ahead for wave 5 is understood. Alternatively, one can wait for wave 4 to end and sell when the market declines again.

Wave 5

Wave 5: It is the final wave of the dominant trend. Although prices make new lows below wave 3, volumes are usually lesser than volume in wave 3.Wave 5 lacks weakness found in wave 3 declines, and finally, markets bottoms out and enter a new phase.

Corrective Trend (Three Wave Pattern)

The corrective trend consists of three waves. The three-wave corrective trend starts when the five-wave dominant trend ends. 

Aftermarket rallies in a primary 5 wave sequence, the market top is made, and markets enter a new phase, i.e., three-wave downward corrective phase.

Characteristic of Corrective Waves after market rallies in a basic five wave sequence

Corrective Waves

Wave A:

It is the beginning of a new bear market.

  • Fundamental news is still positive.
  • The fact that markets can decline is not readily accepted by everyone.

Wave B: Wave B is a small rally which gives the feeling that Bull Run has again started, but prices fail to make new high and typical volume characteristic here is that Volume in Wave B is lesser than Wave A. Wave C: Here prices again start declining, and volume also picks up, and it’s in Wave C that everyone realizes that market decline is likely to continue and hence market participation on the sell-side increases.

Characteristic of Corrective Waves after market declines in a basic five wave sequence

Characteristics of Waves

Wave A:

  • Wave A is the beginning of a new bull market.
  • The real news is still negative.
  • Nobody is ready to accept the fact that markets could rally.

Wave B: Wave B is a slight decline which gives the feeling that decline has again started, but prices fail to make a new low, and the typical volume characteristic here is that Volume in Wave B is lesser than Wave A.

Wave C: Here, prices again start rising, and volume also picks up, and it’s in Wave C that everyone realizes that the market rally is likely to continue; hence market participation on the buy-side increases.

Combining five-wave dominant sequences with a three-wave corrective sequence completes the basic fundamental concept behind Elliott’s Theory.

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.

References

https://www1.nseindia.com/education/content/module_ncfm.htm

Verelq News |
29.03.2024

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

bandar alexistogel

alexistogel toto online

alexistogel livedraw hongkong

login alexistogel

alexistogel agen slot

Alexistogel Toto Macau

alexistogel

alexistogel macau

Alexistogel macau

alexistogel terpercaya

bandar togel hongkong

alexistogel slot online

Togel Hongkong

toto macau online

bandar toto macau

alexis togel macau

alexistogel slot

alexistogel gacor

alexistogel online

slot alexistogel

alexistogel slot

link alexistogel

bandar alexistogel

alexistogel link

alexistogel online

situs alexistogel

alexistogel toto

alexistogel casino

slot alexistogel

alexistogel bandar togel

link alternatif alexistogel

alexistogel bandar slot

alexistogel login

rtp alexistogel

alexistogel toto macau

alexistogel slot

alexistogel online

alexistogel daftar

alexistogel slot

alexistogel link alternatif

alexistogel bandar gacor

alexistogel terpercaya

Alexistogel Login

alexistogel

alexistogel slot dana

alexistogel bandar togel

alexistogel situs

alexistogel rtp

alexistogel slot

alexistogel daftar

alexistogel

alexistogel slot

alexistogel

alexistogel

alexistogel gacor

link alternatif alexistogel

alexistogel

alexistogel slot

alexistogel

alexistogel

Slot Online Alexistogel

link alternatif alexistogel

Alexistogel Login

slot online gacor

Hoki88 Slot Online

slot online gacor

slot online

slot online dana

slot gampang menang

slot88 online

bandar togel macau

bandar toto macau

togel sydney

Agen Slot Gacor

RTP Slot Online

slot online

Slot Online Gacor

slot gacor pg soft

situs slot online

bandar slot gacor

slot online resmi

bandar togel online

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

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