Elliott Wave Basics (Part 1)

03/03/2008 12:00 am EST

Focus:

I am writing this tutorial to show the basics of Elliott Wave Theory. I will not show all the different variations of corrective waves and some other more advanced charting of Elliott Wave Theory. I recommend reading more complete Elliott Wave Theory material that will show all the intricacies involved in the theory. I have listed other resources in my information and link page of Shepwave.com.

Elliott Wave Theory was discovered by Ralph Nelson Elliott in the 1930’s. He came to the conclusion that the markets don’t move in random movements and that directional changes have a correlative relationship with other directional movements in many different time frames. His methods can explain all the movements of any market in history. This gives the Elliottician a better understanding of the future direction of the market.

Basically, markets move five waves in the impulsive or motive direction and three waves in the corrective direction. The drawing below shows how this basically looks. I have written this tutorial as an example for a bullish market scenario. For bearish markets, simply invert drawings. Note that waves 1, 3, and 5 are motive in that they move in the direction of the trend for the entire five-wave move. Waves 2 and 4 are corrective and usually don’t violate the starting point of the previous motive wave. 

More in Part 2 tomorrow. Part 2  |  Part 3  |  Part 4
By Christian Shepard of Shepwave.com 

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