1. Investment Insights
Investment Insights
Elliott Wave Analysis
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All about investments.
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4. Introduction
• This concept was proposed by Ralph Elliott Nelson.
• Proposes that markets move in predefined patterns.
• Elliott Waves consist of impulse waves and corrective
waves
• Impulse waves consists of 5 sub-waves and move in the
direction of the trend.
• Corrective waves have three sub-waves and move against
the direction of the trend.
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5. Elliott Wave Pattern
• The basic wave pattern consists of an
impulse wave and a corrective wave.
• Impulse waves consist of 5 waves
(Wave-1 to Wave-5) and moves in the
direction of the trend.
• Waves 1, 3 and 5 move in the direction
of the trend while Waves-2 and 4 move
opposite to the trend.
• Corrective waves can be simple or
complex.
• A simple correction consists of 3 waves
(Wave-A, B and C) which retrace a
portion of the impulse wave
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6. Impulse Waves
• A wave which moves in the
direction of the trend is called a
impulse wave.
• Waves 1, 3, 5 in an impulse
wave.
• Impulse waves can be
subdivided into 5 waves
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7. Impulse Waves
•
Following guidelines can be used to
determine if a wave is impulse,
o
Wave 2 should not retrace Wave 1
completely.
o
Wave 4 should not retrace Wave 3
completely.
o
Wave 4 should not go below the top
of Wave 1.
o
Top of Wave 3 should be higher than
the top of Wave 1.
o
Wave 3 is generally the longest
amongst Waves 1, 3 and 5.
o
Wave 3 is never the shortest amongst
Waves 1,3 and 5.
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8. Extension
• Extensions are elongated
impulse waves.
• Wave 3 is most likely to show
an extension pattern.
• Any of Waves 1, 3 and 5 can
show an extension pattern.
• Extensions generally occur in
only one of Waves 1,3 or 5
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9. Truncation
• A truncation pattern is formed
when the Wave 5 is not able to
break above the highs of Wave
3.
• Generally happen following a
strong Wave 3
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10. Ending Diagonal
• These are generally formed as
Wave 5.
• These indicate exhaustion of the
prevailing trend.
• These are generally formed after
sharp moves.
• A rising ending diagonal in an
uptrend is a very bearish signal
and leads to a sharp reversal.
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11. Corrections
• Corrective waves move against the broader trend.
• Corrections can be simple or complex.
• Corrections are never in 5 waves.
• Common corrective patterns are
o Zigzags
o Flats
o Triangles
o Complex Corrections: Can be combinations of the above
patterns. Example, a double Zigzag or Flat and Triangle
joined by a X wave, etc
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12. Zigzags
• Three wave corrective pattern.
• The top of wave B is lower than
the beginning of Wave A. Bottom
of Wave C is lower than Bottom of
Wave A.
• Wave A and C can be divided into
5 sub waves. Wave B can be
divided into 3 waves.
• Complex corrections can take the
form of double or triple zigzags
joined by X waves.
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13. Flats
• This is a 3 Wave corrective
pattern.
• Wave B ends close to the
beginning of Wave A and Wave
C ends close to the end of
Wave A.
• Waves A and B are in 3 waves.
Wave C is in 5 waves.
• Complex corrections can take
the form of double or triple flats
or combinations of flats and
other corrective patterns joined
by X waves.
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14. Triangles
• Triangles are consolidation
patterns which consist of 5
waves.
• Each of the 5 waves can be
subdivided into 3 sub waves.
• Complex corrections may be a
combination of triangles and
other corrective patterns joined
by X waves.
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15. Elliott Wave Example
• The example shows a 5 wave
move higher followed by a 3
wave corrective decline.
• At this stage the market may
move higher in another impulse
wave or a complex correction
may take place.
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16. Questions
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