Elliot Wave Principal

Introduction
 Elliot Wave Theory Was Developed By The Ralph Nelson Elliot In Year 1930 . After Studying
Dow Theory Approach That Market Moves In Waves .He Observed Different Pattern Which
Are Occurring Within Wave And Come Up With His Theory Of Elliot Wave, In Which He Has
Described About All Possible Wave And Theory And Punished A Book “Elliot Wave
Principle” In 1938 ,
 Elliot Believed That As Market Seems To be Behaving In A Random And Chaotic Manner
But It Not True . He Had Observed That Market Is Behaving In A Repeating Pattern Which
May Or May Not Be Equal In Time And Amplitude But Structure Of These Patten Are Same
In Any Time Frame Which Provide More Scientific Approach To The Trader/ Analyst.

What Is Elliot Wave Theory

Form Elliot Wave Perspective The Plotted Price Activity Is The Graphical Representation Of Crowd
Phycology ,Once Certain Physiological Mood Has Run Its Course People Tend To Get Bored With An
Idea And Grab A New One .Elliot Wave Theory Organizes Random Flow Of Market Price Action Into
An Identifiable, Predictable Pattern Based On Natural Progression Of Crowd Psychology. Price Of Any
Share Does Not Vertically Go Up Or Go Down .If Share Has To Go In Any Direction It Does So In
Waves. Ralph Nelson Elliot In His Theory Come Up With A Detailed Description Of These Waves,
Description About Their Moves, Location, Personality, Behaviours, Structure, Rules And Guideline
For Proper Calculation Of The Wave.
Rule of Game:
There Are Three Main Rules For Elliot Wave Counting, Are As Follows:

1. Wave 2 Never Retrace More Than 100% Of Wave 1.

2. Wave 3 Can Never Be The Shortest Of Three Impulse Wave.

3. Wave 4 Does Not Cross The Final Point Of Wave 1 Except In Diagonal .
These Are The Three Basic Rules Of Elliot Waves And Must Not Be Broken At Any Condition
While Counting Wave Any Rule Is Broken Then We Are Surely Wrong In Our Count.

Wave Degree:
All Wave Can Be Categorized By Degree. Elliot Derived Nine Degree Of Waves From Smallest To
Largest, He Choose The Name Listed Below These Degree From Largest To Smallest Degree.

Grand Supercycle : Multi Century

Super Cycle : Multi Decade
Cycle: One Year To Several Year
Primary: Few Month To Couple Of Year
Intermediate: Weeks To Months
Minor: Weeks
Minute : Days
Minutte : Hours
Subminnutte : Minutes

Cycle Wave Are Subdivided In To Primary Wave That Subdivided Into Intermediate That In
True Subdivided Into Minor And Sub- Minor Waves. By Using This Nomenclature We Can
Identify The Precisely The Position Of Wave

Wave Concept
 Motive Wave : Motive Wave Subdivided Into Five Waves With Certain Characteristics And
Always Move In Same Direction Of One Larger Degree , Motive Waves Can Be Further
Classified As “Impulsive Wave” And “Diagonal Triangle” . Motive Waves Are Easy To Identify
Specially Impulse. Because Of Their Simple Structure And Easy Rule To Plot Them.

1. Impulse Wave: The Most Common Motive Wave Is An Impulse Wave, In Impulse Wave
The Wave1 Does Not Overlap With The Wave 2 Under Any Condition, In Addition To This The
Sub waves Of An Impulse (1,3,5) Are Motive In Nature Specially Wave Which Is Always An
 Impulse. It Is Always In Direction Of The Trend. Sub Waves Are In Pattern Of (1-2-3-4-5) .

2. Diagonal Triangle : Diagonal Triangle Is A Specially Type Of Motive Wave Which

Mostly Occur In Wave 5 . When The Previous Wave 3 Have Gone Too Far Too Fast . A Very
Small Percentage Of Diagonal Wave Are Appear In C Of A-B-C Correction .Diagonal Take A
Shape Like A Wedge Where Two Line Are Converging Diagonal Waves Are Subdivided Into
Two Different Type , Depend Upon Their Location .
a. Ending Diagonal: Wave 5 and Wave C Is Likely To Be Ending Diagonal With Sub
Waves Of Structure (3-3-3-3-3) And Markets As 1-2-3-4-5, It Represent Lack Of
Strength Of Up Move, As A Result Of This Lack Of Strength Wave 5 th Is Shorter
Having Internal Structure Of (3-3-3-3-3) It Means The Bull Are Losing Steam And
Trend Is Likely To Be Reverse After The 5 th Wave Finally Complete .
b. Leading Diagonal : It Is Likely To Occur In Wave 1st Or Wave A With Sub Waves Of
Structure (5-3-5-3-5) If Wave 1 Is Of Leading Diagonal Then Wave 3 Is Likely To Be
Extended .
Sub wave Are Waves Of Lower Degree.

IMPULSE
MOTIVE ENDING
WAVE DIAGONAL
DIAGONAL
LEADING
DIAGOANL
 Motive Waves Wave Sequence Labelling
Impulse 5-3-5-3-5 1-2-3-4-5
Diagonal Leading 5-3-5-3-5 1-2-3-4-5

Diagonal Lagging 3-3-3-3-3 1-2-3-4-5

 Corrective Wave: As Name Suggest It Is Wave Which Are Against The Trend Of One Higher
Degree. Resistance From One Higher Degree Appear To Prevent A Correction From
Developing A Full Motive Structure. This Struggle Between Two Opposite Trending Degree
Make Corrective Wave Less Clearly Identifiable Than Motive Waves . For This Reason It Is
Difficult To Correctly Label A Correction Until It Is Over. One Should Must Exercise Correction
Wave Counting With More Caution.
 Corrective Wave Are Further Classified As
1. Flat Correction: It Is A-B-C Pattern Having Sub Waves (3-3-5), Wave A=3, Wave B=
3 .Wave C=5.It Mostly Occurs At Wave 4. Here C Wave Will Terminate Or Surpass
The Low Made By Wave A . It Is A Brief Correction In Term Of Price Flat Are Also Of
Three Different Type Depend In The Location Of C Wave.
 Regular Flat
 Irregular Flat
 Running Flat

2. Zigzag Correction: It Is A-B-C Pattern Having Sub Waves (5-3-5), Wave A=5. Wave
B= 3 ,Wave C=5,It Mostly Occurs At Wave 2 .C Wave Will Surpass The Low Made By
Wave A . It Is A Deeper Correction In Term Of Price . Here Wave C Is Likely To Be
Equal To Wave A.

3. Triangle: Triangle Reflect The Balance Force Causing A Sideways Movement With
Decrees In Volume And Volatility .It Consist Of 5 Overlapping Wave With Sub Waves
(3-3-3-3-3) And Labelled As A-B-C-D-E, It Can Be Easily Spotted And Its Breakout Can
 Be Traded In The Direction Of The Major Trend More Easily Than Trading Any Other
Pattern, Most Likely To Occur In Wave 4.

4. Double Three: It Is Combination Of Two Simple Corrective Pattern It Could Be Two

Flat .Two Zigzag Or Flat And Zigzag Or Combination Of Triangle With Flat Or Zig-Zag .
Here Two Corrective Pattern Are Connected Through 3 Wave A-B-C Denoted By X .
Double Three Is Represented By X-Y-Z.
5. Triple Three: It Is Side Wave Combination Of Corrective Pattern . It Is More Of A
Time Wise Correction Then Price Wise. Represented By W-X-Y-X-Z Here .It Is A
Combination Of Three Simple Corrective Pattern (Flat+Triangle+Ziz-Zag) Like This
There Any Many Possibility Of Triple Three Corrective Pattern Structure .

FLAT

SIMPLE
CORRECTION ZIG-ZAG

CORRCTION TRIANGLE
WAVE
DOUBLE
THREE
COMPLEX
CORRECTION
TRIPLE THREE

Correction Waves Wave Sequence Label

Flat 3-3-3 A-B-C
Zig-Zag 5-3-5 A-B-C
Triangle 3-3-3-3-3 A-B-C-D-E
Double Three 3-3-3 W-X-Y
Triple Three 3-3-3-3-3 W-X-Y-X-Z
Advantage of Elliot waves
MULTIPLE BENEFIT : Long Term Benefit Of Elliot Wave Are Numerous. As An Investor Or Trader
One Can Frequently Anticipate Major Change In Economic Environment. In Such Know Condition
One Can Protect His Gain And Also Profit Form Such Change In Trends.

HELPFUL INDICATOR CLARIFICATION: If One Decide To Use Another Indicator In Conjunction

With Elliot Wave Theory . The Theory Actually Help Him To Anticipate When And Where That
Indicator Is Likely To Fail.

SIGNAL INFREQUENT BUT RELIABLE : Only After An Identifiable Pattern Is Complete It Is Safe To
Enter A Market .It Help To Avoid Overtrading And Prevent Entering The Market When There Is Little
Potential .

It Is One Of The Tool Which Is Forecasting In Nature. All Other Indicator Are Lagging As They Only
Give Average Value Of Past Data In Some Aspect.

Limitation
COMPLEXITY: Elliot Wave Theory Is probably The Most Complex and Lengthy Theory .It required
Lot Of Time And Practice To Master. The Theory Take More Time To Perfect Then Most Of People
Are Willing To Commit.

YEAR TO MASTER: There Are So Many Rule And Guideline In Elliot Wave If Would Probably Take
Year Just To Understand Theory, And Another Year To Effectively Apply Elliot Wave And Master It.
Extreme Complexity Of Elliot Wave And Demanding Nature Of Wave Theory Prevent Most People
From Pursuing This Area Of Analysis.

MEMORIZATION: Large Amount Of Information Needed To Memorized Order To Apply Elliot Wave
Theory , If One Forget Or Wrongly Interpreted A Technique Whole Wave Count May Be Wrong And
Our Trade Is More Based On Luck Then Scientific Approach.

What Make Elliot Wave Theory More Unique

Complete perspective: Unlikely Most Of System Elliot Wave Theory Allow Us To Analysis Any Time
Frame Hourly , Daily , Weekly, Monthly ,Year Etc. Even More Interesting Studying All Time Frame
Simultaneously So We Can Easily Understand How Bigger Time Frame Is Affecting The Lower Time
Frame Move.

Detailed categorization : Elliot Allows Categorization Of Move Which Cover Just A Few Seconds In
Length To Hundreds Of Year .If We Know What Type Of Pattern Is Unfolding Then We Can Have A
Better Idea Of What To Expect From The Move In Term Of Speed, Complexity , Volume, Time.