Basics of Elliott Wave Theory

Welcome to the world of Elliott Waves.

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Elliott Wave Theory revolves around three key elements:

1. Impulse waves (in the direction of the trend)
   
2. Corrective waves (against the trend)
   
3. Wave degrees
   

Impulse waves consist of five sub-waves, while corrective waves comprise three. These waves form cycles, representing market psychology in action.


Key Rules of Elliott Waves

1. Wave 2 cannot retrace beyond the starting point of wave 1.
   
2. Wave 3 must be longer than both wave 1 and wave 5.
   
3. Wave 4 cannot exceed the end point of wave 1.
   

Elliott Waves and Fibonacci Retracement


Incorporating Fibonacci retracement levels refines Elliott Wave analysis. The fourth wave often hovers between 23.6%, 38.2% and 50%, while correction waves C often unfold within the 50% to 61.8% range.


Elliott Waves as Guides, Not Guarantees

It’s crucial to view tools like Elliott Wave Theory as guiding lights, not crystal balls. While they don’t assure foolproof predictions, they offer a framework to decipher market cycles. As patterns repeat, understanding market psychology becomes the trader’s edge.