Basic principles of Elliott Wave

Elliott wave theory is a collection of complex techniques. Approximately 60 percent of these methods is quite clear and easy to use. The other 40 percent is difficult to determine, especially for beginners. The practical and conservative approach is to use 60 percent of which are clear. When the analysis is not sufficiently clear, why not find another market that would be consistent with the model of Elliott waves, which is easier to identify. Over the many years of working with this approach, we developed the following practical approach to the Elliott Wave principles in trading. All of Elliott wave theory can be classified into two parts:

. Pulse model
. Correction model

Pulse model
Pulse model consists of five waves. These five waves can be in both directions, up or down. Below are some examples.

Pedigree impulsive motion

Descendancy impulsive motion

The first wave is usually a weak rally with a very small percentage of the involvement of market participants. Once Wave 1 is over, the traders make the sale at the Wave 2. Sales in the Wave 2 is very chaotic. Wave 2 finally ends, do not reach the new minimum, and the market begins to unfold for another rally.

Wave 2 does not reach the new minimum

The initial stage of the rally waves 3 are slow and the market finally reaches the top of the previous rally (Peak Wave 1). At this point above the top of Wave 1 added a lot of stop-orders. Traders do not believe in an upward trend and use this increase to add more short positions. To ensure that their assumption was correct, the market can not overcome the peak of the previous rally. Therefore, a lot of stop-orders placed above the top of Wave
1.

Wave 3 in the initial stage

Rally Wave 3 is gaining momentum and overcome the top of the waves 1. Once the maximum is exceeded 1 waves, triggered the deployment of stop-order. Depending on the number of stop orders that result from their operation GEPy may remain open.

GEPy is a good sign of development of Wave 3. After the operation stop orders, Wave 3 rally drew attention of traders.


After overcoming the top of the wave 1 start triggered stop-order, resulting in further movement can occur with GEPomSleduyuschaya sequence of events follows: traders, who initially took long positions from the base, finally, can breathe freely. They may even decide to add to positions. Traders who short positions were closed to stop the order (after painful reflection) conclude that the trend goes up and decide to buy at this rally. All this sudden interest sustains rally Waves 3. This is a time when most market participants agreed that the trend is upward.

After the closing of short positions on the stop order, the traders after some time join the rally

The decline in profits due to fixation in the Wave 4 is different from the chaotic sale in the Wave 2

Finally, the entire buying boom cooling. Wave 3 is nearing completion. Now begins fixing profit. Traders who held long positions from the base, they decided to close. They have a good deal and are beginning to record a profit. This leads to a rollback, which is called a wave 4. While the Wave 2 was a chaotic sale, Wave 4 is organized by a decline as a result of a fixed income. While fixation occurs profits, the majority of traders are still convinced that the trend is upward. They either joined the rally late, or so far remained outside the game. They believe that this decline due to fixation of return is an excellent opportunity to make a purchase. At the end of Wave 4 comes more buyers, and prices begin to rise again. Rally Waves 5 Waves 3 yields rally on enthusiasm and strength of the buyers. Increasing waves of 5 due to a small group of market participants. While the prices reaching a new peak above the top of Wave 3, the degree of force raise Waves 5 is very small compared with the increase in Waves 3. Finally, when the relatively small tail away interested buyers, the market reaches the peaks and enters a new phase.

Prices in the Wave 5 reach new peak, however, the strength of the rally are weaker compared to the rally Waves 3

Correction model
Corrections are very difficult to trade. Most traders, trading on the waves of Elliott, make money at the time of the pulse model, and then lose them at the time of corrective phase. Mismatch model (with the exception of the triangle) is composed of 3 waves, in contrast to the 5-wave impulse model. Pulse model is always accompanied by a correctional model.

Correction models can be grouped into two categories:
. simple correction
. complex correction

Simple correction
There is only one model in a simple correction. This model is called the "Zig-заг correction." Correction of Zig-заг - a model consisting of three waves, in which wave B does not restore more than 75% of Wave A. Wave C makes the new minimum below the end of Wave A. A wave of correction Zig-заг always has a 5-wave pattern. In two of the three types of complex correction (flat and irregular), Wave A has a model of three waves. Thus, if you can identify the model with five waves in the Wave A of any correction, you can then expect that a correction would be model-Sieg заг.


Waves A
Wave B is usually 50% of Wave A, but does not exceed 75% of Wave A.
Wave C is equal to the Wave A or 1.62 A or 2.62 waves

The group includes the correction of complex 3 models:
. flat
. incorrect
. triangle

Plane Correction
In a flat correction length of each wave is identical. After a 5-wave impulse model, the market declines of Wave A. Then the increase in the Wave B up to the previous maximum. Finally, the market is declining for the last time in Wave C to the previous minimum Waves A.


Incorrect correction
In this type of correction, Wave B makes a new maximum. The final Wave C may drop to top Waves A or even lower.


Fibonacci ratios in the wrong Wave
Wave B = 1.15 Wave A or 1.25 A Wave
Wave C = 1.62 Wave A or 2.62 A Wave

Triangular correction
In addition to the 3-wave corrective patterns, there is another complex mismatch model, which arises from time to time. This model is called "triangular model". The approach to the triangular model of Elliott wave theory is different from other kinds of triangles in the analysis. The five sub-waves of the triangle has been defined as A, B, C, D and E.


Triangles most commonly occur as a fourth wave. Sometimes you can see the triangle as the Wave B 3-wave correction. Triangles are very complex and complicated models. You must very carefully examine the model before taking it on the basis of any decision. Prices have a tendency to "fired" from the model triangle quick trigger.

When the triangles occur in the fourth wave, the market is "fired" from the triangle in the same direction as Wave 3. When the triangles occur in the Wave V, the market "fired" from the triangle in the same direction as wave A.


Rule of alternation
If Wave 2 is a simple correction, we should expect that wave 4 is a complex correction. If Wave 2 is a complex correction, then it is expected that Wave 4 will be a simple correction.

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