Elliott impulsive wave11/8/2022 ![]() ![]() The FMH states that this property is due to investors with similar motivations but having different time horizons. Ed Peters called this the Fractal Market Hypothesis. The patterns of trends and corrections in charts have a very similar appearance whether looking at an hourly or a monthly chart. The fractal property means that although each pattern is random, the basic structures of the patterns look the same at any scale.įinancial markets have fractal like properties. Examples of fractal patterns are the branches of a tree or the edge of a coastline. In the main corrective wave, wave A and C are impulse waves (in the reverse direction), and wave B is a corrective wave.įractals are self-repeating patterns that are commonly found in nature. Waves 1, 3 and 5 are bullish impulse waves whereas waves 2 and 5 are the corrective waves within the main impulse. This shows the main impulse wave of 5 distinct sub waves. And the corrective is made up of 3 sub waves, known as A-C.įigure 1 for instance shows a complete bullish wave cycle. So an impulse is made up of five separate sub waves from peak to trough, known as waves 1-5. Bullish corrections have 3 waves – 2 down and 1 up. Bullish impulses have 5 waves: 3 waves up and 2 waves down. ![]() ![]() The corrective wave is always smaller than the impulsive meaning the price pushes toward the dominant direction of the trend.Ī cycle can be broken down further into a 5-wave and 3-wave pattern. In any Elliott cycle, there’s always an impulsive or motive wave followed by a corrective wave in the opposite direction. Simple Explanation of the Elliott CycleĮlliott rightly identified that a trend rarely moves in a straight line but more often in steps: 3 steps forwards to 2 steps back. A bullish cycle is shown in Figure 1 and a bearish cycle in Figure 2. In a bearish trend it’s the other way around. In a bullish trend, the impulse direction is upwards, and the corrective direction is downwards. A cycle comprises two waves: an impulse wave and a corrective wave. He called these waves, hence the name Elliott wave theory.Įlliott’s main idea was that during trending phases the crowd psychology is shifting back and forth between optimism and pessimism and that a trend will ultimately push in one dominant direction.Īn Elliott wave is defined as the movement from a price peak to a price trough or a trough to a peak. Elliott said that far from being random, the trends in financial markets are driven by a predictable rhythm of human behavior. What is Elliott Wave Theory?Įlliott’s wave theory is all about timing: timing of market cycles. This makes Elliott theory an interesting model and it’s what we’ll look at here. Understanding how trends form is obviously vital if you want to time entry and exit points for buying and selling. Often 3 steps forward, in the direction of the trend and 2 steps back.Įlliott assumed these movements to be driven by human emotion, such as fear and greed. #ELLIOTT IMPULSIVE WAVE SERIES#After studying many stock charts, Elliott noticed that price trends don’t progress in straight lines, but rather they evolve as a series of steps. Elliott’s wave theory is one of them.Įlliott wave theory was developed by Ralph Nelson Elliott in the middle of the last century. There are a many technical analysis models out there that claim to have found a way of predicting order within financial charts. ![]()
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