Elliott Wave Principle

Creator: Ralph Nelson Elliott (1871 1948) Precept: the market has structure cyclicality. Tenets: - Prices move in waves - Waves consist of motive (impulse) and corrective waves - Motive Impulse Wave is the overall upward movement of the stock market - Corrective Wave is the overall downward movement

1 Ralph Acampora 2008

Elliott Wave Principle

The Basic Pattern
5 3
Wa 4 ve

1
2 ve Wa

av e

av e

2
Source: Elliott Wave Principle by Frost and Prechter

Wave 2 never drops below the start of Wave 1. Wave 3 usually has an advance that is greater percentage wise than wave 1 or wave 5. Wave 4 never pierces back into wave 1.
2 Ralph Acampora 2008

av e

Elliott Wave Principle

The Complete Cycle
(1) 5
W e av

B
av e B

3
Wa 4 ve

av e

W e av C

A C (2)

1
2 ve Wa

av e

av e

2
Source: Elliott Wave Principle by Frost and Prechter

There are two distinct waves: motive and corrective: Motive consists of five waves Corrective consists of three waves or variations
3 Ralph Acampora 2008

Elliott Wave Principle

The Essential Design
3 (3) 5 3 (1) 5 3 1 4 2 Source: Elliott Wave Principle by Frost and Prechter A C (2) B 1 4 2 A C (4) B 1 4 3 2 5 (A) B 1 3 5 (C) 2 4 1 1 (5) 5 2 4 A (B) C 2

Waves A and C are subdivided into five waves. Waves A and C are motive they trend in the same direction of wave 2. Wave B has three waves. Wave (B) is corrective because it corrects wave (A) and is counter trend to wave 2.
4 Ralph Acampora 2008

Elliott Wave Principle

I

tiv o M
1 (5)

ve a eW
3 (5) (B) (3) (2) (1)

5 (5) (2) (3) (1) (4) (3) (4) (A)

Co

(C)

rre ct B iv
(2)

eW av e (4)

(B) (5) A (C)

(1) (3)

(1) (4) (B) (3) (2) (1) (4) (C) (2) 2 (A)

(A)

(5) C

II

Source: Elliott Wave Principle by Frost and Prechter

5 Ralph Acampora 2008

Elliott Wave Principle

Elliotts nine degrees of waves - (they are sub-divided): Grand Supercycle Supercycle Cycle Primary Intermediate Minor Minute Minuette Sub-minuette

6 Ralph Acampora 2008

Elliott Wave Principle

Motive Waves are sub-divided into five waves. There are two types of motive waves:
Impulse an example is wave 4 does not pull-back into the are of wave 1. Most impulses contain an extension; the most common extended wave is wave 3.
5 3

2
Source: Elliott Wave Principle by Frost and Prechter
7 Ralph Acampora 2008

Elliott Wave Principle

Diagonal Triangle an ending diagonal triangle most often occurs in the fifth wave following a move that has gone too fast and too far.
(5) 5 4 (3) 2

3 1

(1)

(4)

(2)

Source: Elliott Wave Principle by Frost and Prechter

8 Ralph Acampora 2008

Elliott Wave Principle

Corrective Waves move counter to the prevailing trend. Most important aspect they do not develop in a five-wave sequence. They can appear as either a sharp or a sideways correction and they form within four categories: Zigzag Flat Triangle Combination Alternation the practitioners of Elliott Wave warn analysts to always be on guard that the next market cycle will not be exactly like the previous market cycle. One can also expect the opposites to happen; for example, is a corrective move commences with an a, b, c zigzag in wave A, then expect a flat a,b,c flat in wave B.
9 Ralph Acampora 2008

Elliott Wave Theory

Tenets (continued): - Impulse wave is made up of five sub-waves: - Waves #1, #3 and #5 are up waves (lesser impulse waves) - Waves #2 and #4 are corrective waves - Corrective wave is sub-divided into three sub-waves: - Labeled A, B and C - Waves #1, #3 and #5 are sub-divided into five waves: - Labeled I, II, III, IV, V - Waves #2 and #4 are divided into three sub-waves: - Labeled a, b, c

10 Ralph Acampora 2008