Professional Documents
Culture Documents
About
Equities
Commodities
Forex
Videos
Books
Reminiscences
Raves
Site Map
Exclusive Membership
Elliott Wave Theory is quite straightforward. Created by Ralph Nelson Elliott and first published in his book
The Wave Principle in 1938, this theory has suffered numerous misinterpretations at the hands of careless
analysts. It is true that Ralph Elliott was not an expert copywriter, and he tried to present a more
comprehensive version in his final work Natures Laws: The Secret of the Universe in 1946. However, a
diligent student can learn quite a lot by paying attention to not just the main features of the Elliott Wave
Theory, but also to the numerous clues that are strewn in all of Ralph Elliotts works. In this article, I will try and
summarize some of the main points of the Wave Theory. Also explained are Elliott Wave Cycle, the three key
Elliott Wave Rules that are considered the pillars of the Wave Principle, and the Personality of some waves
such as the third wave in a cycle.
often very clear! Whereas the first and second impulse waves were followed by a smallish correction, the
downward move that came after the fifth wave up was a larger move. This was so because this last mentioned
downward move corrected not just the preceding impulse wave (the 5th wave) but also the entire five wave
sequence.
So to recap, in a bull market, we will see three upward moves and two downward moves. Once the five waves
are completed, we will get a correction that will be bigger than the two previous corrections because this
downward move corrects not just the fifth wave, but the entire set of five waves up.
If a sequence of five waves plus three waves is completed as above from a significant low, then the completed
cycle will represent the first and second waves of a cycle in the time frame of the nest higher degree. Every
impulse wave is actually made up of a five-wave sequence within itself. Corrective waves are usually made up
The Elliott Wave Principle has just three straight forward rules. In a five wave progression,
http://www.wavetimes.com/elliott-wave-theory-cycle-rules-personality-explained/
1/4
6/1/2014
Ramki on Twitter
Easy enough, right? The trouble is to understand how to use these rules to your advantage. In my book Five
Waves to Financial Freedom I have explained all these with numerous examples. But you could see hundreds
of charts in this blog itself. At Wavetimes.com, there are Elliott Wave examples covering dozens of asset
Wave Personality
In addition to giving us the rules of Elliott Wave Theory, Ralph Elliott also discussed the personality of the
and the waves you counted may be subwaves of wave 1. That is the loop hole. Still
Seeking Alpha Gold Certification
waves at various positions in the cycle. For example, the third wave is usually the steepest wave, and is
accompanied by expanding volume. A corrective wave in the fourth wave position is usually complex in nature.
You will see sudden departures from normative behavior. Also, just when you think a correction is almost
finished, a complex fourth wave will add another level of complexity to the formation. These are just some
examples of wave personality.
simple correction, you should expect wave 4 to be complex. These are valuable clues to the trade that can
offer a real edge in the market, the so-called Elliott Wave Edge.
on MarketWatch
Any explanation of Elliott Wave Theory, however brief, will be incomplete without a mention of the use of
Fibonacci Ratios. These ratios are computed from the Fibonacci number series that start of like this
1,1,2,3,5,8,13,21. As you can see, each number is the sum of the preceding two numbers. Fibonacci Ratios
are computed from these numbers. The key ratios used in Elliott Wave Analysis are 38.2%, 50%,61.8%,
100%, 138.2% and 161.8%
Generally speaking, the following relationships work.
Wave 1 is corrected by wave 2 by between 50% to 100% (note that 50% is obtained by dividing 1 by 2
in the Fibonacci series of numbers)
Wave 3 is usually 161.8% of wave 1
Wave 4 is often 38.2% of wave 3. Occasionally, when wave 1 was a shallow correction, we can see
wave 4 coming down by 50% of wave 3, and very rarely 61.8% of wave 3. If wave 3 was an extension,
then wave 4 is more likely to terminate around the 23.6% retracement level.
Wave 5 is often computed by taking either a 38.2% measure or a 61.8% measure of the distance
traveled from the start of wave 1 to the end of wave 3. If Wave 3 had extended, then there is a high
chance for wave 5 to be equal to wave 1.
http://www.wavetimes.com/elliott-wave-theory-cycle-rules-personality-explained/
Recent Comments
Trading NIFTY using Elliott Waves by
Ramki of Wavetimes.com (43)
Ramki Ramakrishnan: Hi Sunny,
Thanks for...
Sunny: Hi Ramki, With all the
2/4
6/1/2014
Within corrections, in a zigzag correction, wave C is often 161.8% of wave A. If the correction is a flat
correction, then wave C is usually equal to wave A or no more than 138.2% of wave A.
You can read more about the Fibonacci Number Series here.
Corrective Waves
Most traders encounter difficulties when dealing with corrective waves. Elliott Wave theory has broadly
your expert...
, now...
A zigzag correction often corrects the previous impulse wave by a significant extent. A zigzag correction is
made up of two sets of mini-impulse waves separated by a corrective wave. Thus the sub-waves of a zigzag
to see you...
A flat correction, on the other hand, will only correct a smaller portion of the previous impulse wave.
Furthermore, the sub waves of the flat correction will be made up of a 3-3-5 sequence. Notice that in the
the...
zigzag as well as flat correction, the last sub wave is a five wave affair!
Triangles are further classified as horizontal triangles and leading or ending triangles. The sub-waves of these
triangles have their own personality traits. If it is a leading diagonal triangle, the sub waves are made up of 5-
3-5-3-5 waves. But if it is an ending diagonal triangle, the sub waves are 3-3-3-3-3 waves.
This blog...
R Sathyamurthy: Dear Sir, Nice
Dont be alarmed, but sometimes corrections tend to become complex whereby we see combinations of
analysis....
zigzags, flats or triangles. This is why I always advise traders to avoid trading complex corrections. You can
identify a complex correction using the tendency of waves to alternate in complexity. Occasionally wave 2
very...
becomes a complex wave, in which case your stop loss is anyway supposed to be placed below the start of the
wave 1!
Index (8)
essa: Hello Mr. Ramki Is it time to
update...
When a trade uses Elliott Wave Analysis to determine where we are in the big picture, and then computes
likely levels where a turn is highly probable, then he/she has what I would like to call the Elliott Wave Edge.
Thanks for...
Once he uses all the rules, his knowledge of the personality of the waves, and the price targets using
Fibonacci Ratios, the trader will be able to determine a price level where he could initiate a position in the
market place. After that, it all boils down to money management. The determination of a low-risk entry level is
the key benefit of doing Elliott Wave Analysis. A trader who has the Elliott Wave edge will find that the
on medium...
TASI MAGIC (15)
Ramki Ramakrishnan: Yousef,
consistent application of the Elliott Wave analysis to his trading activity will produce a series of winning trades
that will make him money over time. You can read more about the Elliott Wave Edge here.
Tw eet
Share this:
Facebook 2
Pocket
Google
Pinterest
Email
LinkedIn
Digg
StumbleUpon
Tumblr
Search
Posted by Ramki Ramakrishnan at 6:03 pm
Will Rogers
"I am not as concerned about the return on
my money as I am about the return of my
money"
Vic Sperandeo
"Many people make the mistake of thinking
that market behavior is truly predictable.
Nonsense. Trading in the markets is an
odds game, and the object is always keep
the odds in your favor."
Blogroll
the ELLIOTT WAVE lives on
My Favorite Author
John Navin: Forbes
EconMatters
http://www.wavetimes.com/elliott-wave-theory-cycle-rules-personality-explained/
3/4