Elliott Wave
Theory decomposing market moves into 5 impulse waves + 3 corrective waves.
Continuation
Difficulty: ●●●●●
Reliability: 5/10
Ralph Nelson Elliott (1938). Markets move in fractal waves following a 5-3 pattern.
Impulse structure (5 waves)
- Wave 1: initial impulse
- Wave 2: correction (often retraces 50-61.8% of 1)
- Wave 3: usually the longest, never the shortest
- Wave 4: correction (must not overlap wave 1)
- Wave 5: final push, often with oscillator divergence
Corrective structure (3 waves: ABC)
- A: first bearish wave (5 sub-waves)
- B: technical bounce (3 sub-waves)
- C: final drop (5 sub-waves)
Strict rules
- Wave 2 NEVER retraces 100% of 1
- Wave 3 never shortest of impulses
- Wave 4 doesn't overlap with 1 (except special cases)
In practice
Elliott works great in hindsight, less so in real time. Use as a reading grid, not a signal system.
When to look
Test on well-established trends, multi-timeframe.
Confirmation
Counting waves confirms them; Fibo confluences at wave ends validate the read.