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Background
Ralph Nelson Elliott) (1871 - 1948) studied the wave phenomena of the US stock market in 1934 Published the Wave Principle in 1938 Published the Nature Law in 1942 In 1970s, Robert Prechter, Jr. made Elliott Wave Theory popular in the investing communities

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Theory Outline

Market fluctuations due to:

Impulse Wave Corrective Wave

Impulse wave
follows the trend composes of 5 sub-waves

Corrective wave
moves against the trend Composes of 3 sub-waves

Waves within waves

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acrotec.com Waves within Waves (3) 5

b 3 a 2 (a) 5 4 (5) 5

3 1 4 1

2
4 a

(b) c

3
b 1

2 4 3

1
(1) 5

(4) c

3 1
4

b
2 (c) 5

a
(2) c

By counting waves in the long term to short term charts, forecasting can be made
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Time / Price Structure of Financial Markets

Fluctuations according to:

the Fibonacci Number Series

Fractal Structure Non-linearity

Asymmetry

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Wave Counting Principle

2nd wave should not exceed the beginning of 1st wave 3rd wave should not be the shortest among 1st, 3rd and 5th wave No overlapping between 4th and 2nd wave (with exception in diagonal triangle) Rule of alteration 2nd and 4th waves take different wave forms

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End of 2nd wave should not exceed the beginning of 1st wave
5 3 1

Wrong

Correct
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3rd wave should not be the shortest among 1st, 3rd and 5th wave
5 3
1

4
2

Wrong
(iii)

(i)
1

(ii)
2

Correct
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4th wave should not overlap with the 2nd wave (except for diagonal triangle)
5
3 1 4 2 (iii) (i)

Wrong

1 (ii)
2

Correct
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Rule of Alteration 2nd and 4th wave take different forms
5
3

1
4

Correct
5 2

Correct
2
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3 Wave Forms in Impulse Wave (1)

Extension
One of the 1st , 3rd and 5th wave will extend

conspicuously 3rd wave would not be the shortest among 1st, 3rd and 5th wave

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1st wave extension
3 5

3rd wave extension

3

5th wave extension

1 1
2 2

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3 Wave Forms in Impulse Wave (2)

Diagonal triangle
Wave structure in upward or downward diagonal

triangle In a form of contracting or expanding triangle The sub-waves in the diagonal triangle take the structure of 3-3-3-3-3 If diagonal triangle appears at the 1st wave, it will take the structure of 5-3-5-3-5 The 2nd and the 4th sub-wave will overlap
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Contracting diagonal Triangular 5th wave
3

Expanding diagonal triangular 5th wave

3

4 1

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Contracting diagonal triangular 1st wave
1

5
3

Expanding diagonal triangular 1st wave

1

5 3

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3 Wave Forms in Impulse Wave (3)

5th wave extension
5th wave failed to exceed the 3rd wave end 5th wave takes a structure of 5-3-5-3-5 failure to have the momentum to breath into new high / low before reversal

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Upward 5th wave failure
3 5 2

Downward 5th wave failure

4
1

1
4

2 3

5
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Corrective Wave Structure

4 simple structures in corrective wave

Zig-Zag Flat
Irregular Horizontal Triangle

2 complex structures in corrective wave

Double Three Triple Three

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Zig Zag (5-3-5)
(ii) bc b (i) (iii) a a (i) (iv) a (ii)

b
(i)

(iv)

(iii) c c (v)

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Flat (3-3-5)
b b a

bc
(ii) b ac (iii) c c (v) (i)

(iv)

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Irregular (3-3-5)
b b a bc (ii) b (i) (iv)

a
a ac (iii) c c (v)

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Horizontal Triangle (3-3-3-3-3)
b b

Contracting horizontal triangle

a

c
c

a
d b

Expanding horizontal triangle

a c e a c e
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Double-three
b x b

a b a

bc (ii)
b

xc
(ii) a (i) (iii)

(iv)

a bc

(i)

(iv) b b

(ii) a (i) (i) (iv) (iii)

ac
(iii) c (v)

c (v)
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Triple-three
b x b x b

a bc

bc a (ii) b (i)

xc
b a (ii)

(ii)
(iv) a

xc
b

(i)

a
ac

(i)

bc (iv) a (iii)
b

(iv)

(ii) a (iv) b

ac
(iii) c (v)
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(iii)
c (v)

a (i) (i)

(iii)
c (v)

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Elliott Channel (1)

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Elliott Channel (2)

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3

Elliott Channel (3)

2
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Elliott Channel (4)
3
5

2
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3?

Elliott Channel (5)

1

(1) 5

3 a
1 4

(2) c

2
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(3) 5

Elliott Channel (6)

1 (1) 5 3 b 2

a
1

(2) c

2
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Elliott Channel (7)
3
a 1 (1) 5 3 a 1 b 2 4 (5) 5?

(3) 5
b

(4) c

4
(2) c 2
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Elliott Channel (8)
(3) 5 b 3 1

(5) 5 3

a 1
(1) 5

4
(4) c

3 a
1 4

(2) c 2
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(5) 5

Elliott Channel (9)

(3) 5
b 1

1 3

3
a (1) 5 3 1 a 4 (2) c b 1 4 (4) c 2

(a) 5

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(5) 5

Elliott Channel (10)

(3) 5
b 1

2 (b) c a
4 1 3 4

3
a (1) 5 3 1 a 4 (2) c b 1 4 (4) c 2

b
(a) 5

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(5) 5

Elliott Channel (11)

(3) 5
b

(b) c
a

1 3

4
2

3
a (1) 5 3 1 a 4 b 1 4 (4) c 2 b (a) 5

1 3

(c) 5

(2) c 2
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Item
Book Name Author

Details
Elliott Wave Principle: Key to Market Behavior Robert Prechter and A.J. Frost

Contents

The basic tenets of wave theory The rules and guidelines of wave analysis The scientific background of the Wave Principle and Long term waves
Details R. N. Elliott's Masterworks: The Definitive Collection Robert Prechter, Jr.

Item Book Name Editor

Contents

"The Wave Principle" (1938) The Financial World articles (1939) Nature's Law -- The Secret of the Universe (1946)
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