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Elliott Wave Theory
Elliott Wave Theory
The Elliott Wave theory is a form of technical analysis that looks for recurrent long-term price patterns related to persistent changes in investor sentiment and psychology.
The theory identifies impulse waves that set up a pattern and corrective waves that oppose the larger trend.
This can be powerful information when paired with trends or especially identifying a possible Phase 2 movement
Great representation of pullbacks that will occur in the market before continued upward momentum
Wave 2 (from 1 to 2) should not retrace 100%; we typically see a 50% - 61.8% retracement (Fibonacci)
Wave 3 is the longest wave; expect the wave to be greater than Wave 1
Wave 4 (3 to 4) should not overlap Wave 1 or resistance has been broken
Wave 5 can be similar to Wave 1, but is often seen as the breakdown Wave
In general, if any wave retraces below the previous wave, the formation is typically busted
Three Rules of EWT
Three Rules of EWT
If Wave 2 is a sharp correction, Wave 4 will be a flat correction and vice versa
Wave 3 is the longest wave. Therefore Wave 5 approximates Wave 1
A-B-C correction ends near low of Wave 4
This chart gives us the probability of pullback in price using the Fibonacci Retracement Tool
Take this information with a grain of salt and understand that pullbacks will happen
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