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Background
Ralph Nelson Elliott) (1871 - 1948) studied
the wave phenomena of the US stock
market in 1934
Published the “Wave Principle “ in 1938
Published the “Nature Law” in 1942
In 1970s, Robert Prechter, Jr. made Elliott
Wave Theory popular in the investing
communities
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Theory Outline
Market fluctuations due to:
Impulse Wave
Corrective Wave
Impulse wave
follows the trend
composes of 5 sub-waves
Corrective wave
moves against the trend
Composes of 3 sub-waves
Waves within waves
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(5) 5
Waves within 3 2
Waves (3) 5
(b) c
1
b 4 1 4 a
3 2
3
a 2
b 4
(a) 5 1
1
(1) 5 4 (4) c
3
3 b
2 (c) 5
1 a By counting waves in the long
4 term to short term charts,
(2) c forecasting can be made
2
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Time / Price Structure of
Financial Markets
Fluctuations according to:
the Fibonacci Number Series
Fractal Structure
Non-linearity
Asymmetry
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Wave Counting Principle
2nd wave should not exceed the beginning
of 1st wave
3rd wave should not be the shortest
among 1st, 3rd and 5th wave
No overlapping between 4th and 2nd wave
(with exception in diagonal triangle)
Rule of alteration – 2nd and 4th waves take
different wave forms
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End of 2nd wave should not exceed
the beginning of 1st wave
5
3 1
1
2
4
2 Wrong Correct
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3rd wave 5
should not be 3
the shortest 1
4
among 1st, 3rd
2 Wrong
and 5th wave
(iii)
(i)
1
(ii)
2
Correct
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4th wave 5
should not 3
overlap with 1
the 2nd 4 Wrong
wave 2
(except for (iii)
diagonal (i)
triangle) 1
(ii)
2
Correct
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Rule of 5
Alteration – 3
2nd and 4th Correct
wave take 1
4
different 5
2
forms
3
1 4
Correct
2
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3 Wave Forms in Impulse Wave (1)
Extension –
One of the 1st , 3rd and 5th wave will extend
conspicuously
3rd wave would not be the shortest among
1st, 3rd and 5th wave
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3 Wave Forms in Impulse Wave (2)
Diagonal triangle –
Wave structure in upward or downward diagonal
triangle
In a form of contracting or expanding triangle
The sub-waves in the diagonal triangle take the
structure of 3-3-3-3-3
If diagonal triangle appears at the 1st wave, it
will take the structure of 5-3-5-3-5
The 2nd and the 4th sub-wave will overlap
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3 Wave Forms in Impulse Wave (3)
5th wave extension –
5th wave failed to exceed the 3rd wave end
5th wave takes a structure of 5-3-5-3-5
failure to have the momentum to breath into
new high / low before reversal
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Double-three
x b
b
a bc c a c
xc
(ii)
b a (ii)
a (i) (iv) a bc
(i) (iv)
a b (ii)
(iii)
b b
ac a (i) (i) (iv)
(iii)
(iii)
c (v) c (v)
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Triple-three
x b
b x b
a c a c a c
bc bc
xc xc a
(ii) (ii)
b a (ii) b
(i) bc (iv)
a
(i) (iv) (iv) a b (i)
a b (ii) a a
(iii) ac
b (iv)
ac b b (iii)
(iii) a (i) (i)
(iii) c (v)
c (v) c (v)
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3?
Elliott Channel (5)
1
(1) 5
3 b 2
a
1 4 (2) c
2
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(3) 5
Elliott Channel (6) 3
1 4
(1) 5
3 b 2
a
1 4 (2) c
2
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(5) 5?
Elliott Channel (7) (3) 5
b
3
a
1 4
(1) 5 (4) c
3
b 2
a
1 4
(2) c
2
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3
Elliott Channel (8)
(3) 5
1 4
b
3
a 2
1 4
(1) 5 (4) c
3
b 2
a
1 4
(2) c
2
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Elliott Channel (9) 3 2
(3) 5
1 4
b 4 1
3
a 3
2
1
(1) 5 4 (4) c (a) 5
3 b
2
a
1
4
(2) c
2 33
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Elliott Channel (10) 3 2
(b) c
(3) 5 a
1 4
b 4 1
3
a 3
2
b
1
(1) 5 4 (4) c (a) 5
3 b
2
a
1
4
(2) c
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(5) 5
Elliott Channel (11) 3 2
(b) c
(3) 5 a
1 4
b 4 1 2
3
a 3
2 4
b 1
1
(1) 5 4 (4) c (a) 5
3
3 b
2 (c) 5
a
1
4
(2) c
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Item Details
Book Name Elliott Wave Principle: Key to Market
Behavior
Author Robert Prechter and A.J. Frost
Contents The basic tenets of wave theory
The rules and guidelines of wave analysis
The scientific background of the Wave
Principle and Long term waves
Item Details
Book Name R. N. Elliott's Masterworks: The Definitive
Collection
Editor Robert Prechter, Jr.
Contents "The Wave Principle" (1938)
The Financial World articles (1939)
Nature's Law -- The Secret of the Universe
(1946)
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