Elliott Wave Principle


The Theory

By now, you’ve probably noticed that the market doesn’t move in straight lines. When you look at a chart, you’ll see prices moving in zigzags. Your success in using the Elliott Wave system will depend on your ability to break down these price movements into trends (or impulsive waves) and corrections (or corrective waves).

Impulsive Waves follow the general direction that the price is taking, while corrective Waves oppose the general direction. (In the next section we will explain in further details how you can recognize when the wave is impulsive or corrective.)

Mr. Elliott pointed out that the markets moved in what he called a 5-3 wave pattern.

Of the first 5 waves, waves 1, 3, and 5 move in the direction of the general trend, while waves 2 and 4 correct, meaning move against that trend. The following 3 waves move in the direction opposite to the trend, and are denoted by the letters A, B, and C.

These 5-3 formations can be found in all time intervals, as we will see in the next section.

The Theory