impulsive (waves 1,2,3,4,5) to the corrective(waves a,b,c,d,e,w,x,y,z).While it seemsoverly complex,with time and study,thereal-time recognition and application of thesepatterns do come to light.Analogously,whilethe rules of billiards are simple,winninga game of billiards is more complicated.This applies to Elliott Wave in principleand Elliott Wave in practice.
In financial markets,Elliott wave patternsoccur in any market with sufficient volumeand liquidity.While the real-time applicationof Elliott varies between,for example,a commodity market and foreign exchangemarket,or a 5-minute chart and a 5-decadechart,the basic principles governing Elliottare equally applicable.Some debate whetherElliott is most applicable in some marketsversus others.Aside from this being asubjective debate,it should be realised thatElliott can and is widely utilised acrosscommodity,equity,fixed income and foreignexchange markets on all time frames.
The Basic Picture
Financial markets ultimately progress in an“impulsive”or five wave sequence regardlessof whether they are bull or bear markets.Theimpulsive waves – waves 1,3 and 5 as seen inthe basic pattern shown in Figure 1– are thedirectional or trendingwaves.Waves 2 and 4are the corrective orcounter trend waves.This principle applies toall time frames.Asmentioned before,thefractal nature of thepatterns implies that thesmaller patterns are building blocks of thelarger patterns while thelarger patterns,correspondingly,can be broken into theirsmaller subcomponents. Just as market analystsrefer to degrees of trend(intraday,short term,medium term,etc.),theElliottician refers towave degree.Thus while thetrader/strategist mayconclude that themarket is in a short-term downturn within amedium-term bulltrend,the Elliotticianmay refer to the samechart by saying that themarket is,for example,in wave two of three,or four of five…same markets,sametimeframes,same conclusions – just differentmodes of expression.It is worth remembering that successfulmarket forecasting is based on probability andpercentages.Elliott is particularly valuable athelping to identify where the market is in aparticular trend and thus helps ascertain notonly buying and selling peaks,but also suitableplaces to commit capital based on location of the overall wave pattern that is unfolding.If one can correctly identify where the market iswithin an overall pattern (Elliott or otherwise)and can reliably project how the patterns arelikely to complete,then a market opportunityexists.
ALCHEMIST ISSUE FORTY
and = 2 waves(1), (2), (3), (4), (5), (a), (b), (c) = 8 waves1, 2, 3, 4, 5, a, b, c, etc=34 waves
© July 1996 Elliot Wave International. Inc.© July 1996 Elliot Wave International. Inc.
Fig. 2Fig. 3
W a v e 1
W a v e 2
W a v e 3
W a v e 4
W a v e 5
W a v e A
W a v e B
W a v e C
Figure 2: The basic patternFigure 3: The fractal nature of the basic patternFigure 4: A weekly chart shows a completeElliott Wave pattern for the US Five Year NoteFuture
Figure 5:An intraday chart shows a complete Elliott Wave pattern for USDJPY