**Elliot Wave**

- Mankind’s progress does not occur in a straight line.
- Progress is often characterized by punctuated growth: periods of rapid growth alternating with a phase of non-growth or decline.
- EW often indicates in advance, the relative magnitude of the next period of market progress or decline.
- By offering such extremely valuable insights, EW practioners can achieve superior results by being in sync with Market trends.
*Any price action which did not contribute to trend to go that is a center trend. Eg. May be a reversal on sideway on opposite directions.*

**EW Basics….**

- Structural design
- Which reflects a basic harmony & design found in Nature.

- Rational system of Market Analysis.
- A rule based approach to price analysis.

- Each transaction is an effect
- Joining the chain of causes of others behavior.

- A feedback loop based on man’ social nature.

**The 5 Wave Pattern**

- It is the overriding form of Market progress.
- All other patterns are subsumed by it.

- 5 waves of specific structure.
- Waves 1, 3 & 5 effect directional movement.
- Waves 2 & 4 are counter-trend.

- At any time, the Market is somewhere in this basic 5 wave pattern (in the largest degree).

**2 Wave Modes**

- Motive,
- Powerfully move the market.
- Direction can be Up or Down.
- Have a 5 wave structure / all motive wave has 5 wave st----
- Aka: Impulse or Actionary.

- Corrective
- A partial retracement / correction of the prior motive wave.
- Direction can be Up or Down.
- Have a 3 wave structure.

**The 5 Wave Pattern**

*Important Note:-*

*Normally / mostly W3 in longer for all the practical consideration.*

*W4 low may be equal to the W1 lengh not a single paise lengh or low W4 on W1.**Only in Diagonal may enter in the W4.*

**3 Rules of EW**

- W2 should not exceed the start of w1.
- W2 can retrace 100% of w1 but Never more.

- W3 should not be the shortest of waves 1, 3 & 5
- The impulse waves in a 5 wave impulse trend.

- W4 does not enter w1.
- Except for a diagonal pattern in w1/5.

- Use High & Low Spot prices for determining the above.
- These rules are never broken in a valid EW Count!

**Complete Cycle**

**8 waves: 5 + 3**

*Motive waves are numbered**Corrective waves are lettered.*

**Wave Degree**

- The Fractal design of Nature is reflected in the Elliot Wave & the Market.
- All waves
- Have component waves of lower degree.
- Are component / sub waves of higher degree.

- The process of building greater & lesser degrees continues indefinitely.

**Wave Degree**

Wave Degree *5s with the Trend Sa Against the Trend

(--- next is Arabig symbols) (--- next is caps)

Grand Supercycle (I) (II) (III) (IV) (V) (a) (b) (c)

Supercycle (I) (II) (III) (IV) (V) (a) (b) (c)

Cycle I II III IV V a b c

Primary (1) (2) (3) (4) (5) (A) (B) (C)

Intermediate (1) (2) (3) (4) (5) (A) (B) (C)

Miner 1 2 3 4 5 A B C

Minute (i) (ii) (iii) (iv) (v) (a) (b) (c)

Minuettee (i) (ii) (iii) (iv) (v) (a) (b) (c)

Subminuettee I ii iii iv v a b c

(--- next is Arabic symbols) (--- next is caps)

*What ever I have betermines ton what even degree, to check son the wave ending of the degree. I must have to check with the one degree lower is the best.*

**Which Degree?**

**/ How much data / Who are you?**

- Spot trader / investor.
- Intraday data useful to see subwaves.
- But not necessary. EoD data Is good enough!

- Positional trader – Spot & F&O
- 30 / 60 min charts for last 1-2 months are very useful.
- Allow subwaves counts.
- More precise Entries & Exits!
- Better SLs & Targets.

- Day Trader?
- As much intraday data as you desire!

- Do counts on Spot EoD OHLC data.
- Due to spikes & liquidity, counts on F&O data are not reliable.

**Essential Design**

*Any Trend is caused by impulse waves only.*

*Impluse – Strong move in a direction.*

*Form / structure*

**Essential Design**

- Direction of the wave is determined by its relative direction and not its absolute direction.
- If Motive Wave is Up, it Corrective will be down.
- If Motive Wave is Down, it Corrective will be up.

- Waves divide in Motive mode (5 waves) when trending in the same direction as wave of one larger degree.
- Wave divide in Corrective mode (3 waves) when trending in the opposite direction of the wave of one larger degree.

**Essential Design**

- Regardless of Degree, the Form is constant.
- A Motive wave has
- 5 subwaves &
- Can point Up or down

- A Corrective wave has
- 3 subwaves &
- Can point up or down.

- Direction is Relative.

**EW Guidelines**

**EW Guidelines**

- Extension
- Equality
- Alternation
- Truncation
- Channeling
- Ratio Relationships

*In Management Switch between linean & log.*

**Extension.**

- At least one of the 3 impulse waves will be extended.
- The subwaves of the extended wave could be as long as one of the waves
- W1 extension is quite rare.

**Equality**

- 2 of the 3 non-extended waves will be equal to each other.
- Usually 1 & 3 or 1 & 5.
- If ‘perfect’ equality is lacking then the one is likely to be 0.618 x of the other.

- By closely studying waves 1 & 3 (sizes & subwaves), one can get very practical insights as to how w5 would evolve.
- Extremely useful to find Entry & Exit.

**Alternation**

- If w2 is – simple or complex,
- Then w4 is likely to be the other!

- wA is Flat, then w8 is likely to be a zigzag!
- And vice versa!
- wC is always 5 waves.

**Channeling**

- Useful technique to assess where various waves ‘could’ terminate.
- Only a guideline to be used along with other wave attribute.

*This is generally happens it is not a rule for eg:*

**Channeling Practical stuff…**

- After waves 1 & 2 are over and w3 has begun – draw a line connecting points 0 & 2 – baseline – extend right.
- Touching point 1, draw a parallel to this baseline 0-2.
- This is a tentative line potentially stopping w3.
- If w3 is strong / extends, it will break this line.
- Also draw a parallel to w1 starting at point 2
- Intersection of these two is where a normal w3 would complete.

**Channeling Practical Stuff…**

- Once w3 is over, connect tops of waves 1 & 3 – draw a parallel to this starting at w2 – could offer support when the in progress w4 reaches it.
- Once w4 is over, connect bottom of waves 2 & 4 – draw a parallel via top of w3 – extend right – w4 is very likely to terminate about this line.
- If w3 was very strong, draw the parallel can be via top of w1 (instead of w3)

- Draw a parallel to w3 starting from w4 and watch the price action at the intersection of these 2.

**Fibonacci Ratio and Elliot Wave**

**Fibonacci Numbers**

- 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, …
- Add adjacent 2 numbers to get the next fibo #

- Golden Ratio: ratio of any 2 adjacent Fibonacci numbers = 0.618 or 1.618
- Seen in all aspects of Natural phenomena from the smallest to the largest magnitudes.
- The Markets also have the same mathematical base (?)

- IMP: Correct (& very profitable) application of Fibonacci ratio can only be done by 1
^{st}clearly understanding EW Structure, Form & Personality.- Do not apply Fibo Ratios blindly!

Weather a Bull or Bear Market, the waves subdivide to the next Fibonacci sequence.

**Fibo Ratio Analysis**

- A number of Fibonacci ratio price relationships occur among waves.
- 2 types:
- Multiples / Projections / Extensions.
- Not to be confused with Extension guideline.

- These relationships can be used to assess how far a wave is likely to move.
- Hence extremely useful to find entry & exit points.

**Retracements**

- A deep correction corrects 50% or 61.8% of the prior motive move.
- Sometimes 100% of the prior move.

- A shallow or ‘sideways’ correction corrects 23.6 or 38.2% of the prior motive move.

**Motive Multiples**

**aka: Projections / Extensions.**

- All 3 motive waves tend to be related to each other by some Fibonacci ratio:
- 382, 0.618, 1.618, 2.618
- And rarely by 3.618 & 4.618
- 1x, 2x, 3x & 4x relationships are also seen.

- These relationships can be in absolute or %age terms.
- Look for them in both liner & log charts of the security.

**Impulse / Motive Waves**

**Waves 1, 3 & 5**

**2 types of Motive Waves**

- Impulse Wave
- W4 never enters w1.
- Subwaves 1, 3 & 5 of Impulse are Motive
- With subwave 3 specifically being an Impulse.

- Diagonals
- Occur in w1 & w5 only.
- Subwave 4 overlaps with sw1.

*+ W3 diagonal cannot happen. If I am monkey w3 where I see diagonal then check for the wave cannot.*

**Impulse Wave 1.**

**W / w1**

- Starts at the end of a prior corrections.
- Look for the last wave of the correction to be made.
- Wave C with 5 subwaves.
- Enter Long / Short.

- SL below (above) point Zero (end of the correction)!
- Is the start of a 5 wave impulse move.
- Has 5 subwaves.

**Impulse Wave 3**

**W / w3**

- Starts at the end of w2.
- Usually the longest & strongest.
- Almost vertical rise / fall.
- Look for prices to move suddenly & swiftly.
- Often has gaps in the direction of the move.
- Steeper than w1.
- Volume usually increases.

**Impulse Wave 3**

**W / w3**

- EW Rule: Should never be the shortest of w1, 3 & 5
- At least 1x of w1. Often 1.618 x of w1.
- Tendency to Extend.
- 2x 2.618x, 3.618 of w1
- Rarely even more!

- The best wave of trade.
- If one can get in at it’s start and hold on till it completes.
- How?

**Impulse Wave 5**

**W / w5**

- Extended or Normal w5?
- If w1 & w3 are equal, then:
- W5 is likely to extend; Guidelines of Extension.

- If w1 or w3 is extended, then
- W5 is likely the non-extended wave; Guideline of Equality.

- Normal w5
- 38 or 0.61 of points 0-3 added (subtracted) from end w1

- Extended w5
- 1x or 1.618x of points 0-3 added (subtracted) from end w4.

- Watch subwaves of w5
- For Normal / Extended / Truncated.

- If w1 & w3 are equal, then:

*Nothing corrects5*

*ABC corrects 0-5*

*2 corrects 1*

*4 corrects 3*

**Impulse Waves Extensions**

- A wave having a disproportionately large move.
- Looking for Extensions (ext):
- In W1, is subwave w3 ? 1.6 w1, then ext-W1.
- W2 is <= 0.38 of w1, then ext-w3.
- W3 > 1.6x of w1, then ext-w3.
- W4 is shallow, esp <= 0.23 of w3, then ext-w5.
- Normal w1 & w3, then ext-w5.

*Normally we can expect more than 5 subwaves in an extension even with in 3 or 5 on.*

**Extensions Practical stuff…**

- At times, the subwaves of the extended wave are as large (in size & time) as the other 4 waves of the larger degree.
- Waves with 9, 13, 17, 21, etc…
- Subwaves can be clearly distinguished.

- Extended waves can be extremely profitable
- If one trades them right…!!!
- Study subwaves, fibo extension & reflex points closely to avoid getting stopped out of an extension prematurely.

**Impulse Waves Diagonals**

- W4 overlaps w1.
- Occure in only waves 1 & 5.

*Leading Diagonal*

- Leading diagonal – 5-3-5-3-5 – occurs only in w1.
- Ending diagonal – 3-3-3-3-3 – occurs only in w5.
- Aka: diagonal triangles.
- Can be converging or expanding.
- Same as Rising / Falling Wedge in Dow Theory.

*Probably look like*

**Diagonals**

Bullish Ending Diagonal aka: Falling Wedge.

Bearish Ending Diagonal aka: Rising Wedge.

*Ending Diagonals have a big connection.*

*Wave 5 (w5) can – *

*Normal Wave**Extended Wave**Truncated*

*W5 (Truncated) probably have 5 wave on*

*In wave 5 (w5) Diagonal truncation ---- happen.*

**Impulse Waves Failures / Truncations**

- When an Impulse wave falls short of its minimum price objective.
- Typically when w5 falls to exceed the end of w3.
- Can easily be confused for a subwave 1 of w5.
- Especially when w5 is expected to extend but instead falls.

- The subsequent move in the opposite direction in quite strong, i.e. swift & sharp.
- Can be a good contra-trend move!
- But if you fall to recognise truncation, loss on trend position

*To have wave count*

*Have a larger picture*

*What degree I am port of and*

*What is a big wave I am voltas*

*2 deep connection expect shallow correction eg voltas*

**Corrective Waves**

Waves 2 & 4

Wave B

~ Wave A & B ~

**Corrective Wave labeling.**

- Corrective waves are labeled in letters:
- A-b-c-d-e & w-x-y-z.
- In caps / small case based on degree.

- W2 corrects w1 ; w4 corrects w3.
- The subwaves of w2 & w4 are lettered; lower degree.

- wB corrects wA
- A-B-C corrects a 5 wave sequence of the same degree.
- a-b-c- are subwaves of a higher degree corrective wave.

*Price Time*

*Wave 2 3 days Rs. 40*

*Wave 4 10 days Rs. 25*

*When the corrections end not before the both on one is opening the -----*

**Corrective Waves**

- All moves against the trend of one larger degree are called corrective.
- Resistance from the higher degree trend ‘prevents’ a correction from developing a full motive structure.
- This conflict makes Corrective waves not as clear out as Motive in form.
- Hence a challenge to count and identify correctly.

- Usually have 3 subwaves.

Corrective Waves

- Once 5 lower degree (Ld) waves complete 1 higher degree (Hd) wave, the subsequent Hd correction will be bigger than Ld corrections 2 & 4.
- Measure the amount & time taken for the Ld 2 & 4.
- The Hd correction will be > in distance and time taken to complete than the above values.

- Extremely useful guideline.
- How & why!

*Do not expect the impulse before these things ---- happens.*

**Corrective Waves**

**Common features…**

- If you feel the Market is in the middle of a corrective move, it is usually better to use the opportunity to figure out where it
*likely to*end and be prepared to enter the next motive move.- Corrections by nature are more difficult to trade.
- Trade corrections only after building competency in EW.

- The last corrective: wC always has 5 subwaves.
- Useful guide to assess a potential end of the correction.
- Use this to look for low risk, high probability setups in the direction of the higher degree.

**4 types of Corrective Waves**

- Zigzag
- Flats
- Triangles
- Combinations

*Principle 12 of dow Theory*

**Zigzags**

- All zigzags are 3 wave structures – A-B-C : 5-3-5.
- wA has 5 subwaves and is impulse.
- wB has 3 subwaves,
- usually retraces 0.38 – 0.62 of wA.

- wC has 5 subwaves.
- Is impulse & moves 1x, 1.38x, 1.62x of wA.
- Observe this Form & Distance to assess ending of zigzag.

- Anticipating Zigzag:
- Usually in w2.
- Guideline of Alternation.

**Flats**

- Found in strong trends.
- Usually follow or precede an extension.
- Usually retrace less than a zigzag.

- 3 types of Flats – based on differences in shape.
- Regular
- Expanding
- Running

- All have 3 wave structures: 3-3-5.

**Regular Flat**

- wA has 3 subwaves.
- A lack of strength (?) to correct deeply the prior impulse.

- wB has 3 subwaves,
- corrects wA and usually retraces ~ 100% of wA.

- wC has 5 subwaves,
- Usually ends at 1 – 1.38x of wA.

*Extensions normally may be 5 3 5.*

**Expanding Flat**

- wA has 3 subwaves.
- A lack of strength (?) to correct ----ply the prior impulse.

- wB has 3 subwaves,
- Corrects wA and retraces >100% of wA.
- It appears as though the higher degree trend is back.
- But suddenly the prices again correct.

- wC has 5 subwaves
- Starts at the end of wB (at a point beyond wA).
- Usually ends at 1.38 – 1.62x of wA.
- Sometime a strong wC: 2-2.618x of wA.

*wC might have extend wave as well in it subwave 3 or 5 look out for it get complete.*

*If I happen to see triangle probably w4.*

**Running Flat - rare**

- wA has 3 subwaves.
- A lack of strength (?) to correct deeply the prior impulse.

- wB has 3 subwaves
- Corrects wA and retraces >100% of wA.
- It appears as though the higher degree trend is back.
- But suddenly the prices again correct.

- wC has 5 subwaves,
- Starts at the end of wB (at a point beyond wA).
- Ends earlier to wA end.

*Double negatives will tell what it is not.*

**Triangles**

- Triangles form mostly in w4.
- Can also be part of w2 and w8.

- Converging or Expanding type.
- Structure: 3-3-3-3-3
- 5 internal waves, a-b-c-d-e.
- Each of which has 3 subwaves.

- Triangles nearly always occur in a position prior to the final motive wave of one Hd.
- W4, w8
*complex corrections* - Final wX in double / triple zigzag / combination
- So what’s next and what should one do?

- W4, w8

*Both the statements are same, in a different way.*

**Triangles**

Corrective Wave (Horizontal) Triangles

Bull Market

Bear Market

Ascending (Top bal. bottom rising)

Descending (top declining, bottom flat)

**Triangles**

Corrective Wave (Horizontal) Triangles

Bull Market

Bear Market

Contracting or symmetrical (Top declining, bottom rising)

Expanding or Reverse symmetrical (Top rising, bottom declining)

*Expending triangle eg.: Nifty 2014 – Mar / Apr.*

*Normally*

*A will be smaller than a*

*C will be smaller than b*

*D will be smaller than c*

*E will be smaller than d*

**Combinations**

- A single ‘3’ is any simple correction:
- Zigzag, Flats, Triangles.
- A Triangle is called a ‘e’ for this purpose even though it has 5 subwaves.

- Double or Triple ‘3’s
- Combination of 2 or 3 simple corrective patterns.
- Each labeled W / Y / Z
- Each of which can be a zigzag / flat / triangle

- With a ‘connection’ labeled X
- Which is turn can be any of the corrective patterns
- But is usually a zigzag.

- Recognising, labeling & Trading them correctly is a challenge even for experienced ellioticians.

**Combinations**

*Complex, float*

- A Flat’s way of extending sideways action (in time).
- Almost always horizontal in character.

- Never have more than one zigzag.
- Never have more than one triangle.
- And when it occurs, is the final wave of the combination!
- Hence know that the correction is coming to an end.

- Form: W – X – Y – X – Z
- Where each of the W / Y / Z / X can be Any of the simple corrective patterns.

*Corrections happens in*

*Complex corrections*

*Ashok Leyland**Abirnahova*

**Double 3s…**

**Practical Elliot Wave**

*‘C’ in a correction phase probably sharp.*

*Look for*

*Impulsive, corrective, save**Feature to look for*

**Doing a EW Count…**

- It is possible to have > 1 EW Count for a chart.
- With all the counts following all the EW Rules & Guidelines.

- Based on ‘Personality’ & ‘Right Look’, there will be a preferred Primary Count.
- Others are called Alternate Counts.

- As price action unfolds, the labeling & count may
- Get validated as price unfolds as expected.
- Change a little: eg: re-labeling the subwaves or
- Invalidated & change significantly as some expected price action forces a radically different count (and view).

**Personality**

- Each wave has certain characteristic price behavior.
- By paying close attention to this, one can arrive at a more appropriate count for a chart.

- What is the Personality?
- Impulse or Corrective?
- Form: Do the subwaves fit the wave?
- Is another wave personality & form better?

- Easy to assess once one has internalized the wave form & typical behaviours of all the 8 waves
- As already discussed in prior sections.

*When I am doubtful about the count*

*Wait for the clarity**Let the chart show something**Do not forced labeling / counting**It is perfectly to have two counts.**Better to have open us for one or more may be one, two may be three on myself as I do this, it will keep me in the side of market moment.*

**Right Look**

- The entire chart has a certain Balance & Proportionality.
- In terms of Price action and Time.

- Has a motive wave moved:
- In a way it is expected to?
- Moved as much as it is expected to?
- Fibonacci projections are useful here.

- Has a corrective wave:
- Spent ‘enough’ time correcting?

*Get this line to the cut level*

- Retraced ‘enough’ of the prior motive?
- Fibonacci retracement levels are useful here.

- Sense of ‘Right Look’ comes with practice & experience.

**(In)Validation / Reflex Points**

- Price action crossing / not crossing a kew EW point:
- Validates or invalidates an assumed EW count.
- The likely subsequent price behavior becomes clarified.
- Offers excellent Low Risk Setups (LRS)

- Examples:
- Point 0: w2 should never go beyond start of w1.
- Point 1: w4 should never enter beyond end of w1.
- What other points could one use?

- In the examples above:
- What would be Primary & Alternate Counts?
- Which would be (In) Validated & why?

*I am ready to lose money rather than admitting ‘myself’ wrong to ‘me’*

*Have a primary question is*

*What else could happen other then my primary view.*

*Which allows me to have two three counts and keeps me ----.*

*Start like questioning*

*Is this a motive or correction.*

**Practical EW – Starting a count**

- Identify a clear High (Low)
- Start labeling, with this high (low) as w1/a, w2/b, w3/c.
- Subsequent price action will clarify whether it’s a 5 or 3.
- Subwaves can help clarify the mode of the wave.

- If the above labeling does not ‘fit’,
- Start the count with 2/3/4/ or b/c.
- The more EW rules fit, more reliable the Count.
- Personality & Right Look.

- Which Degree?
- Always be aware of which Degree one is looking at.
- How does it relate to at least one degree above?
- This keeps you on the side of the bigger Trend.

**Practical EW**

- What is the most probable pattern?
- Impulse / Corrective / I don’t know.
- Is there an Alternate Count?

- What Market activity will confirm the assume (preferred) pattern?
- Which EW rule / guideline is useful?
- What (In)Validation Point should one watch?

- What Market activity invalidates the assumed position?
- The EW rule / guideline & (In)Validation Point for this could be different from the one to confirm.

**Practical EW**

- Are the subwaves unfolding as they should for the assumed count?

*Get this to the count level.*

- Trade the Market, not the Forecast!!!
- Prepare for the most probable but adapt for the improbable.
- Be quick to change your view if price action invalidates the current view.
- Exist your position quickly when this happens.

- No clearly defined 5s and 3s?
- Do not force a count!
- Wait for more price action.
- Look at other charts.

**L R S**

**Low Risk Setups**

Finding / Awaiting / Acting on very low risk, very high probability opportunities.

*W3 – are short in Time.*

*Like 100 m dash / sprint.*

*And the price move very fast.*

**EW LRS**

**Wave 3s.**

- High probability Impulse Move.
- Has to go above w2.
- At least 1x of w1, most likely 1.618x of w1.
- Good chance of Extension.
- Look at its subwaves for further insight.
- Stop Loss: Beyond end of w2, point 2.

**ES LRA**

**Waves C**

*Advantage of second move*

- You already have waves A & B.
- Know the type of correction unfolding.
- Can measure likely endpoint of wC
- 5 subwaves, fast & swift.
- Stop Loss: Beyond start of wA.

**EW LRS**

**After extended 5 ^{th} **

- After an extended 5
^{th}- wA of the ensuing correction will be sharp.
- And travel to w2 of one lower degree.
- This measuring implication allows for a quick & safe trade, esp Margin & F&O.

*Will*wA connection carefully, it is a zigzag or flat?- 5 or 3 subwaves?
- If flat, wB could go beyond the previous High (Low) and then wC could go down (up) to meet the target for the whole correction

*Watch wA, is it 5 or 3 subwaves?*

**Success in EW…**

- Identifying low risk entry points Before the market has reached there.
- Having the Courage to act when the market gets there.
- Doing this without any further confirmation.

- Having the Discipline to hold on to the position till
- Your view is proved wrong or
- The profit objective is reached.

- Getting out of the position the moment the price action confirms your analysis is wrong.
- Staying out of the market when you are unable to come up with a clear, valid wave count.