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Elliot Wave and Fibo All in One
Elliot Wave and Fibo All in One
Named after Ralph Nelson Elliott, the Elliott Wave Theory is a method of
technical analysis that identifies for recurring price patterns related to
cycles in investor sentiment and psychology.
The theory isolates waves identified as motive waves that form a trend,
and corrective waves that counter the trend.
The idea is that each set of waves is ingrained within a larger set of
waves that follow the same impulse/corrective pattern, described in
fractality.
What is this?
For more in-depth analysis on Elliott Waves, download & STUDY Elliott
Wave Principle, known as “The Bible of the Elliott Wave Theory”, (Yes,
it’s free!!).
Let’s Begin.
Motive Waves
Impulse:
An impulse is the most common motive wave, which is always
subdivided into five waves (1-3-5 up, 2-4 down [or vice versa]). They
move in the same direction of the trend, and are the easiest to
recognize.
Rules:
Guidelines:
Wave 1 is the least common wave to extend
Wave 5 should end with momentum divergence (RSI is the
simplest oscillator to spot this)
Wave 5 can fail to go beyond the end of wave 3
o This is called truncation, but it is not very common
Truncation gives warning of underlying weakness or
strength in the market
Wave 3 usually has the greatest extension
o Occasionally two waves will extend
Never will all three waves extend
When wave 3 extends, wave 5 tends to equal wave 1 in length
Waves 2 and 4 tend to create alternation between each other
o See last page for more details on alternation
Wave 2 typically retraces to deeper levels of wave 1, than wave 4
does relative to wave 3
Wave 2 usually forms as a zigzag or double/triple zigzag
Wave 4 usually forms as a triangle, double/triple threes, or flat
Extended waves can contain exaggerated subdivisions within
them
Usually two of waves 1, 3 & 5 exhibit a Fibonacci ratio
Channel lines and Fibonacci targets are inferior to the wave
count
In most cases, wave 3 has the highest volume
o If volume during the 5th wave is as high as the 3rd, an
extended 5th wave is expected
Fibonacci Extension & Retracement Ratios:
Wave 2 – Retracement
o 50%, 61.8%, 65%, 78.6%, or 88.6% of wave 1
Wave 3 – Extension
o 161.8%, 200%, 261.8%, or 323.6% of wave 1
Wave 4 – Retracement
o 14.6%, 23.6%, or 38.2%, 40% of wave 3
o Ideally it should not exceed more than 50%
If wave 4 does exceed 50% of wave 3, consider a
different count, but do not rule it out
Wave 5 – Extension
o Equal (100%) to wave 1
o Wave 5 is 61.8% of waves 1+3
Diagonal:
Diagonals move within two channel lines drawn from waves 1 to 3, and
from waves 2 to 4. There are two types of
diagonals; leading and ending. This is dependent on if they form at the
start (leading) or end (ending) of an impulse wave, or the form of wave
A (leading) or C (ending) of a zigzag.
There are also two wedge forms for leading diagonals; Contracting and
Expanding
Contracting Diagonal:
Rules:
Guidelines:
Contracting Diagonal:
Wave 2
o 61.8% to 88.6% of wave 1
Wave 3
o 78.6% to 100% of wave 1
Wave 4
o 38.2% to 50% of wave 3
Wave 5
o 61.8% to 100% of wave 3
Expanding Diagonal:
Wave 2
o 61.8% to 88.6% retracement of wave 1
Wave 3
o 127.2% to 161.8% of wave 1
Wave 4
o 61.8% to 88.6% retracement of wave 3
Wave 5
o 127.2% to 161.8% of wave 3
Corrective Waves
Zigzag:
Zigzag is a corrective 3 wave structure (5-3-5) labelled as A-B-C. The top
of wave B is prominently lower than the start of wave A. Occasionally,
there will be multiple zigzags that form when it does not reach its
measured target. These are called double zigzags and triple zigzags.
Rules:
Wave B
o 50%, 61.8%, 78.6% or 88.6% retracement of wave A
Wave C
o 61.8%, 100%, or 161.8% extension of wave A
Waves A and C
o Usually equal in length (100%)
Flat:
A flat correction is an A-B-C corrective move structured 3-3-5. The
stronger the trend, the briefer the flat tends to be. There are three
types of flats: Regular, Expanding, & Running
Rules:
Waves A & B must subdivide into threes (ABC)
Wave C must subdivide into five waves (impulse or diagonal)
Wave A cannot be a triangle
Regular Flat:
Running Flat:
Triangle:
A Triangle is a common 5 wave pattern labeled A-B-C-D-E that moves
counter-trend, and is corrective in nature. Triangles move within two
channel lines drawn from waves A to C to E, and from waves B to D,
usually on declining volume.
Rules + Guidelines:
Contracting Triangles:
Expanding Triangle:
Expanding Triangles:
Combination Correction:
A double three or triple three combination is a complex corrective
pattern. It occurs when simple corrective waves develop together into a
larger corrective structure. They are usually horizontal in structure.
Rules:
Double Three:
Wave X
o 50%, 61.8%, 76.4%, or 85.4% retracement of wave W
Wave Y
o 61.8%, 100%, or 123.6% extension of wave W
Cannot pass 161.8% of wave W
Triple Three:
Wave X
o 50%, 61.8%, 76.4%, or 85.4% retracement of wave W
Wave Z
o 61.8%, 100%, or 123.6% extension of wave W
Wave Y
o Cannot pass 161.8% extension of wave W
Wave Formation
Guideline of Alternation:
The guideline of alternation is a warning to expect a difference in the
next expression of a wave.
Impulse Waves:
Corrective Waves: