Summary and Conclusions
posted under
Philosophy of Technical Analysis
by ceecabolos
Let's briefly summarize the more important elements of wave theory and then try to put it into proper perspective.
1. A complete bull market cycle is made up of eight waves, five up waves followed by three down waves.
2. A trend divides into five waves in the direction of the next longer trend.
3. Corrections always take place in three waves.
4. The two types of simple corrections are zig-zags (5-3-5) and flats (3-3-5).
5. Triangles are usually fourth waves, and always precede the final wave. Triangles can also be B corrective waves.
6. Waves can be expanded into longer waves and subdivided into shorter waves.
7. Sometimes one of the impulse waves extends. The other two should then be equal in time and magnitude.
8. The Fibonacci sequence is the mathematical basis of the Elliott Wave Theory.
9. The number of waves follows the Fibonacci sequence.
10. Fibonacci ratios and retracements are used to determine price objectives. The most common retracements are 62%, 50%, and 38%.
11. The rule of alternation warns not to expect the same thing twice in succession.
12. Bear markets should not fall below the bottom of the previous fourth wave.
13. Wave 4 should not overlap wave 1 (not as rigid in futures).
14. The Elliott Wave Theory is comprised of wave forms, ratios, and time, in that order of importance.
15. The theory was originally applied to stock market averages and does not work as well on individual stocks.The theory works best in those commodity markets with
17. The principal difference in commodities is the existence of contained bull markets.
The Elliott Wave Principle builds on the more classical approaches, such as Dow Theory and traditional chart patterns. Most of those price patterns can be explained as part of the Elliott Wave structure. It builds on the concept of "swing objectives" by using Fibonacci ratio projections and percentage retracements. The Elliott Wave Principle takes all of these factors into consideration, but goes beyond them by giving them more order and increased predictability.Wave Theory Should Be Used in Conjunction with Other Technical Tools
There are times when Elliott pictures are clear and other times when they are not. Trying to force unclear market action into an Elliott format, and ignoring other technical tools in the process, is a misuse of the theory. The key is to view Elliott Wave Theory as a partial answer to the puzzle of market forecasting. Using it in conjunction with all of the other technical theories in this book will increase its value and improve your chances for success.
1. A complete bull market cycle is made up of eight waves, five up waves followed by three down waves.
2. A trend divides into five waves in the direction of the next longer trend.
3. Corrections always take place in three waves.
4. The two types of simple corrections are zig-zags (5-3-5) and flats (3-3-5).
5. Triangles are usually fourth waves, and always precede the final wave. Triangles can also be B corrective waves.
6. Waves can be expanded into longer waves and subdivided into shorter waves.
7. Sometimes one of the impulse waves extends. The other two should then be equal in time and magnitude.
8. The Fibonacci sequence is the mathematical basis of the Elliott Wave Theory.
9. The number of waves follows the Fibonacci sequence.
10. Fibonacci ratios and retracements are used to determine price objectives. The most common retracements are 62%, 50%, and 38%.
11. The rule of alternation warns not to expect the same thing twice in succession.
12. Bear markets should not fall below the bottom of the previous fourth wave.
13. Wave 4 should not overlap wave 1 (not as rigid in futures).
14. The Elliott Wave Theory is comprised of wave forms, ratios, and time, in that order of importance.
15. The theory was originally applied to stock market averages and does not work as well on individual stocks.The theory works best in those commodity markets with
17. The principal difference in commodities is the existence of contained bull markets.
The Elliott Wave Principle builds on the more classical approaches, such as Dow Theory and traditional chart patterns. Most of those price patterns can be explained as part of the Elliott Wave structure. It builds on the concept of "swing objectives" by using Fibonacci ratio projections and percentage retracements. The Elliott Wave Principle takes all of these factors into consideration, but goes beyond them by giving them more order and increased predictability.Wave Theory Should Be Used in Conjunction with Other Technical Tools
There are times when Elliott pictures are clear and other times when they are not. Trying to force unclear market action into an Elliott format, and ignoring other technical tools in the process, is a misuse of the theory. The key is to view Elliott Wave Theory as a partial answer to the puzzle of market forecasting. Using it in conjunction with all of the other technical theories in this book will increase its value and improve your chances for success.
Comment Form under post in blogger/blogspot