Elliott wave principle tutorial (Robert Prechter)

Elliott wave Cycles and Trends :

1. Ascending Complete Cycle

2. SideWays Complete Cycle

3. Descending Complete Cycle

4. Harmonic Complete Cycle

 Anti Cycles

 Complex Cycles

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Ascending complete cycle :

ascending complete cycles have got five motive waves (impulse) and 3
corrective waves (ABC). the end of the cycle is usually near wave four of
motive waves.

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Side-Ways complete cycle :

also side-ways complete cycles have five motive waves (impulse) and
end with 3 corrective waves. the end of the cycles is where the wave
one of impulse wave begin.

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Descending complete cycle :

descending complete cycles end below wave one of the impulse wave.

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Harmonic complete cycle :

the end of harmonic complete cycles are usually where the wave two of
the impulse wave terminated.

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Anti cycles :

anti cycles start with zigzag (ABC) wave toward the trend and end with
five corrective waves countertrend. anti cycles might include ascending,
descending, side-ways, harmonic trends.
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Complex cycles :

complex cycles are formed of cycles within cycles. a microwave within a

cycle could be a wave of another cycle. also some cycles might form a
cycle of higher degree.

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 Elliot wave basics

Five-wave Pattern :

In markets, progress ultimately takes the form of five waves of a specific

structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the
directional movement. They are separated by two countertrend interruptions,
which are labeled 2 and 4 The two interruptions are apparently a requisite for
overall directional movement to occur.

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Wave modes :
There are two modes of wave development: motive and corrective.
Motive waves have a five wave structure, while corrective waves have a three
wave structure or a variation thereof.

Details of the complete cycle :

One complete cycle consisting of eight waves, then, is made up of two distinct
phases, the motive phase (also called a "five"), whose subwaves are denoted by
numbers, and the corrective phase (also called a "three"), whose subwaves are
denoted by letters. The sequence a, b, c corrects the sequence 1, 2, 3, 4, 5.

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Each wave of a cycle might be structured by microwaves of smaller wave degree.

Wave degree:

Grand super cycle - Super cycle – Cycle – Primary – Intermediate

Minor – Minute – Minuette – Subminuette

each degree form another wave of a larger degree hierarchically. sometimes for
recognition of smaller degrees of a cycle we must check-out short period of time-
frame on charts.

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 Motive waves

Motive waves subdivide into five waves with certain characteristics and always
move in the same direction as the trend of one larger degree. They are
straightforward and relatively easy to recognize and interpret.

impulse :
most common motive wave is an impulse wave. in impulse wave four never
overlaps the territory of wave one. wave 1,3,5 are usually structured by smaller
impulse waves within primary degree.

Impulse wave rules :

1. Wave two never prolong more than 100% percent of wave one.

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 2. Wave four never overlaps the territory of wave

3. Wave three is never the shortest but sometimes could be the longest

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Extension in motive waves :
Most impulses contain what Elliott called an extension. Extensions are elongated
impulses with exaggerated subdivisions. The vast majority of impulse waves do
contain an extension in one and only one of their three actionary subwaves.

In the stock market, the most commonly extended wave is wave 3. This fact is of
particular importance to real time wave interpretation when considered in
conjunction with two of the rules of impulse waves. in commodities wave five of
an impulse in uptrend market is usually extended, fifth wave extension of
commodities are basically from a larger and primary degree.

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Correct wave counting :

sometimes extensions occur within extensions, for example if wave three of an

impulse wave is extended, wave three of smaller degree will be extended too. and
if wave five of an impulse is extended, wave five of smaller degree from primary
wave five could also be extended. basically, third wave extension occur in stock
market and has another third wave extension within the construction, and in
commodities, this type of extension occurs.

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Truncation (failure) :
Elliott used the word "failure" to describe a situation in which the fifth wave does
not move beyond the end of the third. We prefer the less connotative term,
"truncation," or "truncated fifth." A truncation can usually be verified by noting
that the presumed fifth wave contains the necessary five subwaves.
Truncation often occurs following an extensively strong third wave.

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 Diagonal triangle

A diagonal triangle is a motive pattern yet not an impulse, as it has one or two corrective
characteristics. Diagonal triangles substitute for impulses at specific locations in the wave
structure. As with impulses, no reactionary subwave fully retraces the preceding actionary
subwave, and the third subwave is never the shortest. However, diagonal triangles are the only
five-wave structures in the direction of the main trend within which wave four almost always
moves into the price territory of wave one.

Ending diagonal :
An ending diagonal is a special type of wave that occurs primarily in the fifth wave
position at times when the preceding move has gone "too far too fast," as Elliott
put it. A very small percentage of ending diagonals appear in the C wave position
of A-B-C formations. In double or triple threes they appear only as the final "C"
wave. In all cases, they are found at the termination points of larger patterns,
indicating exhaustion of the larger movement.

Ending diagonals take a wedge shape within two converging lines, with each
subwave, including waves 1, 3 and 5, subdividing into a "three," which is
otherwise a corrective wave phenomenon.
diagonal triangles could be regular as it's explained or might be expanding.

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Regular ending diagonal triangle :

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Expanding ending diagonal triangle :

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Leading diagonal triangle :
When diagonal triangles occur in the wave 5 or C position, they take the 3-3-3-3-3
shape that Elliott described. However, it has recently come to light that a
variation on this pattern occasionally appears in the wave 1 position of impulses
and in the wave A position of zigzags. The characteristic overlapping of waves 1
and 4 and the convergence of boundary lines into a wedge shape remain as in the
ending diagonal triangle.

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 ZigZags
Corrective waves :
Markets move against the trend of one greater degree only with a seeming
struggle. Resistance from the larger trend appears to prevent a correction from
developing a full motive structure.

Specific corrective patterns fall into four main categories:

Zigzags (5-3-5; includes three types: single, double, and triple);
Flats (3-3-5; includes three types: regular, expanded, and running);
Triangles (3-3-3-3-3; four types: three of the contracting variety (ascending,
descending, and symmetrical) and one of the expanding variety (reverse
symmetrical);
Double threes and triple threes (combined structures).

ZigZags :
A single zigzag in a bull market is a simple three-wave declining pattern labeled A-
B-C. The subwave sequence is 5-3-5, and the top of wave B is noticeably lower
than the start of wave A.
Double zigzag :

double zigzags include three wave (W,X,Y) that each wave has zigzag within it's
construction.

Ralph nelson Elliott labeled these type of corrective waves as A-B-C-X-A-B-C

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 Flat correction

Flats (3,3,5)
A flat correction differs from a zigzag in that the subwave sequence is 3-3-5 Since
the first actionary wave, wave A, lacks sufficient downward force to unfold into a
full five waves as it does in a zigzag, the B wave reaction, not surprisingly, seems
to inherit this lack of countertrend pressure and terminates near the start of wave
A. Wave C, in turn, generally terminates just slightly beyond the end of wave A
rather than significantly beyond as in zigzags.

Triangles
Trinagles :
Triangles appear to reflect a balance of forces, causing a sideways movement that
is usually associated with decreasing volume and volatility.
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Triangles contain five overlapping waves that subdivide 3-3-3-3-3 and are labeled
a-b-c-d-e. A triangle is delineated by connecting the termination points of waves a
and c, and b and d. Wave e can undershoot or overshoot the a-c line, and in fact,
our experience tells us that it happens more often than not.

Ascending Triangle :
Top flat, bottom rising.

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Descending triangle :
Bottom flat, top declining

Symmetrical triangle :
Top declining, bottom rising

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Reverse symmetrical (expanding) :
Top rising, bottom declining

Nine-wave Triangle: sometimes structure of a triangle is nine wave (a-b-c-d-e-f-g).

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 Corrective Combinations

Double and triple threes :

Elliott called sideways combinations of corrective patterns "double threes" and
"triple threes." While a single three is any zigzag or flat, a triangle is an allowable
final component of such combinations and in this context is called a "three." A
double or triple three, then, is a combination of simpler types of corrections,
including the various types of zigzags, flats and triangles.
These type of combinations are labeled W-X-Y too.

in left figure there's a flat correction then X is formed and another flat correction
occured and in the right side there is sideways correction which have three flatt
correction in the form of W-X-Y-X-Z.

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Another sample of triple zigzag that wave W is structured with a flat and X has
zigzag correction of wave W then wave Y ended with a zigzag (ABC).

another sample of triple three correction. a Flat correction forms wave W and
wave Y ends with a Triangle.
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 Alternation within impulses

Alternation within impulses :

If wave two of an impulse is a sharp correction, expect wave four to be a sideways
correction, and vice versa. the most characteristic breakdowns of impulse waves,
both up and down, as suggested by the guideline of alternation.

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Alternation within corrective waves :
If a large correction begins with a flat a-b-c construction for wave A, expect a
zigzag a-b-c formation for wave B.

sometimes if a large correction begins with a simple zigzag (ABC), we expect wave
B to be a Flat correcton.

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 Channeling technique
by recognizing the end of third wave trend , we can draw parallel channel from
wave one to the end of the wave three and parallel channel prolongs from wave
two to recognize where wave four might be ended. when wave four moves below
the parallel channel or it ends above the channel, we must reconstruct the
parallel channel from wave two to four. sometimes wave five ends by touching
mid-line of the parallel channel.

Temporary channel :

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Final channel :

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Throw over :

Within parallel channels and the converging lines of diagonal triangles, if a fifth wave
approaches its upper trendline on declining volume, it is an indication that the end of the wave
will meet or fall short of it. If volume is heavy as the fifth wave approaches its upper trendline,
it indicates a possible penetration of the upper line, which Elliott called "throw-over." Near the
point of throw-over, a fourth wave of small degree may trend sideways immediately below the
parallel, allowing the fifth then to break it in a final gust of volume.

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Wave five response to the mid-line of parallel channel :

sometimes when five wave of fifth wave primary degree completes the
structure and volume is light , wave five can only move up to mid-line
of parallel channel.

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 Fibonacci ratios in extensions

if wave three of an impulse is extended, then wave one and wave five of the
primary degree must be equal to each other.
if wave five of an impulse is extended, wave five could be equal to 1.618 ratio of
wave one and three.
and if wave one is extended, then wave three and five might be equal to 0.618
ratio of wave one.
to calculate these fibonacci ratios, we can use alternation price projection (trend-
based fib extension).

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 Fibonacci ratios in motive waves

wave two could move to 0.618 ratio of wave one. sometimes wave one moves to
the point of beginning of the wave one.

wave four can be prolonged to 0.382

ratio of wave three. (these ratios can be calculated by fib retracement).
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 wave five can move up to 0.382 ratio of wave
one and three. (ratios can be calculated by trend-based fib extension (APP).

in case of having wave five extended it can be

prolonged up to 0.618 ratio of wave one and three.
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 Fibonacci ratios in corrective waves

each wave of zigzag corrections can be equal to 1 fibonacci ratio which mean they
might be equal to each other.

also, in a flat correction each

wave could be equal to each other.
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when a flat correction has orthodox structure (wave b moves beyond where
correction begin and wave c moves below wave A) wave C might be extended to
1.618 ratio of wave A&B or 0.618 ratio of wave A.

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 Using fib spiral (Golden Spiral)

by using this tool, we're able to estimate where the wave five might end.
for using this tool we must draw an arc from where wave one started to where it
ended.
This Fibonacci is more accurate on semi-logarithmic charts.
 Wave personality in a psychological point of view

there are many reasons that cause a long term collapse of market such as war,
disinflation, collapse of dependent markets and etc. in the beginning of wave one
of an uptrend market and end of the collapse, people usually sell by bad news and
fear of more fall-down, this point of market is where the market starts to rise as
robert prechter said.

when wave two begins, most of participants opinion in market is that market will
crash again, while it won't take a long time that wave three starts and markets
moves sharply. in wave three of an uptrend, market has a amazing fundamental
properties and the real value of market is in a desirable condition. this wave is the
most strong wave in stock market.

when wave five starts we realize that the most of the great profits are gone but
this wave doesn't overlap the territory of wave one and can break the end of
wave three.
when wave five starts fundemental factors are more weak than wave three. most
of participants agree on overvalue, this wave is the end of an uptrend market and
corrective cycle starts.

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 Using arithmetic or semi-log scale chart?

using arithmetic chart is acceptable in charts that has low percentage of growth.
but when a chart has high growth rate we must use a semi-log scale chart to have
a better view.
also, semi-log scale chart is more efficient for channeling and fibonacci levels.
As Robert prechter said, using a semi-log chart on high growth rate is on priority
over arithmetic chart.

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