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Elliott Waves and Teaching Its Principles

Elliott Waves and Teaching Its Principles

In the world of financial markets, there are different methods, methods and strategies that each person uses according to their preferences. But the thing that perhaps few people pay attention to is the application of any method and strategy. For example, the Price Action method can only be used for trading and may not be suitable for analyzing a market and publishing an analytical article in a newspaper or website. On the other hand, there are other methods that are only suitable for analyzing and publishing news and articles, and in no way is it possible for them to trade professionally and continuously. The most famous method of technical analysis, which is not useful at all in any market, is the Elliott Waves method. In this article, we want to teach the principles of Elliott waves. If you are one of the people who are still not sure how to use this method, stay with us until the end of this article.


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History of Elliott Waves

In 1938, the book Principles of Waves was published as the first reference for a topic now known as Elliott Wave Theory. The book was written by Charles Collins based on the work of the founder of Wave Principles, Ralph Nelson Elliott.

Elliott’s theory is strongly influenced by Dow’s theory, which has much in common with the theory of wave principles. In a letter to Collins in 1934, Elliott wrote that he had become a subscriber to Robert Ria’s Capital Market Analysis Service and had received his book on Dow’s theory. Elliott went on to prove that “wave principles are essential to perfecting Dow’s theory.”

Elliott published his work on the principles of waves in 1964, two years before his death, in a book called The Secret of Existence. Perhaps if Hamilton Bolton had not decided in 1953 to publish Elliott Wave Supplementary Theory (on which he had worked for 14 years) for bank analysts, Elliott’s theories would have disappeared. In 1978, Frost and Robert Percher co-authored a book called  Elliott Wave Theory  . Parchter then went  a step further in 1980 with the publication  of Elliott’s Great Efforts, leaving a lasting impression on Mr. Elliott’s original writings.

The basics of Elliott waves

There are three important aspects to wave theory. Pattern, ratio and time. Pattern in wave theory refers to wave patterns and their shapes, which is the most important part of this view. Ratio analysis is used to determine correction points and target prices by measuring the relationship between different waves. Finally, time relations are used to confirm wave patterns and ratios, but for some analysts, Elliott’s theory of time is of little importance and validity for market forecasting.

Elliott wave theory is primarily used for large capital market averages. Especially for the Dow Jones Industrial Average. The most basic definition of the theory is that the capital market moves on the basis of a repetitive song or rhythm consisting of five increasing waves, which are then accompanied by three decreasing waves. (See figure below.)

The complete cycle is obtained by counting all the waves, which include eight waves, ie five ascending waves and three decreasing waves. In the incremental waves section, we specify the numbers 1 to 5, and we specify the decreasing waves with the letters a, b, and c.

Elliott waves are periodic (cyclic)

Despite the fixed form of Elliott waves, there are varying degrees of their importance. Trends have many different degrees. Elliott classifies trends into nine different degrees of importance or magnitude, ranging from massive 200-year periods to multi-hour periods. Keep in mind that the eight introductory waves have nothing to do with what degree of trend they are in.

Each wave is divided into waves of smaller degrees, which can also be divided into waves of smaller degrees. In this case, each wave is part of a larger wave with a higher degree. The largest Elliott waves, ie 1 and 2, are divided into eight waves, and each of them is divided into smaller waves, the number of which reaches 34. !

The choice of numbers 1, 2, 3, 5, 8, 13, 21, 34, 55, 58 and 144 was not coincidental, but these numbers are part of the Fibonacci series of numbers that form the basis of the mathematics of Elliott wave theory. Give.

Elliott Waves is a very complex and extensive theory that any analyst and scientist can use according to their level of education and experience. For example, you can use various tricks to predict the price at the end of wave 3 and use it as a profit margin in your trades. Or predicted the beginning of wave a, which initiates a correctional move, and refused to enter into a correction.

We will try to introduce you to these modern tricks and methods in the next articles.


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