What is Elliott Wave Analysis?
Elliott’s Wave Principle is a catalogue of defined chart patterns. These
patterns are helpful to indicate if the market is in a trend or counter-trend.
Knowing the trend or counter-trend position, we also know the main trend
direction. Each pattern has implications regarding the position of the
market and the most likely outcome of the current position.
Most pattern positions will have an outcome that will validate or
invalidate the assumed pattern position. This is extremely important. It
also helps us to determine the maximum distance away from the market to
place the protective stop-loss.
Elliott Wave Pattern Basics – 5’s and 3’s
The basis of Elliott’s Wave Principle is that most trends unfold in five
waves in the direction of the trend and three waves or combinations of
three waves in the direction counter to the main trend. It’s that simple.
Markets usually unfold in three’s and five’s. Five wave patterns are
impulsive or trend structures. Three wave patterns are corrective or
counter-trend structures.
A five-wave impulse trend and three wave or more complex countertrend
each has a characteristic structure which we will talk about
continually throughout this tutorial series. One important objective of Elliott
wave analysis is to recognize in the early stages of the wave structure
whether it is more likely to be an impulse or a counter-trend.
Read next >>> The Three Elliott Wave Rules
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