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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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(5) 5

Waves within
Waves
(3) 5

3
1

2
4

b
3

(b) c

3
a

b
(a) 5

1
(1) 5

(4) c
3

b
(c) 5

a
4
(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
1

Wrong

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

5
3
1

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

Wrong

4
2

(iii)
(i)

1
(ii)
2

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

5
3

Correct

1
4

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

3rd wave
extension

5th wave
extension

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

Expanding
diagonal
triangular
5th wave

4
1

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Contracting
diagonal
triangular
1st wave

5
3

Expanding
diagonal
triangular
1st wave

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

Downward 5th wave

failure

5
2

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)

(iv)

a
(ii)

(iii)
a

a (i)

b
(i)

(iv)

(iii)
c

c (v)

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Flat (3-3-5)
b

bc
b

(ii)
b

(i)

(iv)

ac

(iii)
c

c (v)

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Irregular (3-3-5)
b

bc
b

(ii)
b

(i)

(iv)

a
ac

(iii)
c

c (v)

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

Contracting
horizontal
triangle

c
c

d
b

Expanding
horizontal
triangle

a
a

c
e

c
e
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Double-three

bc

xc

(ii)

(ii)
b

(i)

(i)

(iv)

a bc

(iv)
b

ac

(ii)

(iii)

a (i)
(iii)

(i)

(iv)
(iii)

c (v)

c (v)
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Triple-three
b

bc

xc
b

(i)

xc

(ii)

(ii)

bc
a

(ii)

b
(iv)

(i)

bc
(iv) a
(iii)

ac

(iii)
c (v)

a (i) (i)

b (i)

(ii) a

(iv)

ac
(iv)

(iii)
c (v)

(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)

2
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3?

Elliott Channel (5)

1

(1) 5

a
1

(2) c

2
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(3) 5

Elliott Channel (6)

(1) 5
3

a
1

(2) c

2
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(5) 5?

Elliott Channel (7)

(3) 5
b

3
a
1

(1) 5
3

(4) c
b

a
1

4
(2) c
2
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(5) 5
3

Elliott Channel (8)

(3) 5

b
3

a
1

(1) 5

(4) c
b

a
1

4
(2) c
2
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(5) 5

Elliott Channel (9)

3
(3) 5

3
a
1

(1) 5
3

(4) c

3
(a) 5

2
1

a
4
(2) c

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(5) 5

Elliott Channel (10)

2
(b) c
a

(3) 5

3
a

(1) 5
3

(4) c

(a) 5

2
1

a
4
(2) c

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(5) 5

Elliott Channel (11)

(b) c
a

(3) 5

3
a

(1) 5

(4) c

(a) 5

3
3

2
1

(c) 5

(2) c
2

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Item

Details

Book Name

Elliott Wave Principle: Key to Market

Behavior

Author

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

Item

Details

Book Name

R. N. Elliott's Masterworks: The Definitive

Collection

Editor

Robert Prechter, Jr.

Contents

"The Wave Principle" (1938)

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