Elliot Wave

Technical Analysis
Course - Part 1
Surfing the Waves with Richard Tataru

www.orbex.com
Who is Orbex?
Orbex is a global award-winning online forex broker, fully licensed and regulated by CySEC,
specializing in the provision of access to the world’s biggest and most liquid financial mar-
kets. Orbex has a rich experience of ensuring superior customer service. Traders enjoy
24/5 multilingual support, exceptional trading conditions, and a wealth of educational
material.
Since its founding in 2010, Orbex has focused on the quality of its services and technologi-
cal advancement. As a part of our customer support program, we provide enhanced securi-
ty of clients’ funds and high professionalism in confidential finance matters. Orbex under-
stands the value of rapid decisions on fast-paced financial markets; therefore, we ensure
sharp execution, sound market analysis, and extensive trading education.
For our business partners, we have developed an outstanding Forex Affiliate Program,
including personal business consultant, custom marketing campaigns, innovative affiliate
dashboard, competitive commissions and leading reporting technology that provides full
control over your business. Join Orbex and enjoy the new trading experience!

About the Author

Richard is passionate about technical analysis

with years of charting experience under his belt.
When it comes to his insights and how he analy-
ses the markets, he uses leading analysis tools. In
particular, Elliott Wave Analysis is his forte, and
he dedicates the majority of his time to using and
perfecting this analytical method. Richard uses
Elliott Waves in combination with Structures,
Patterns, Divergences, and then spices things up
with Vibration Levels, Fibonacci measurements,
Channeling, Break-outs or Flag formations.

www.orbex.com 1
ELLIOTT WAVE PRINCIPLE – COURSE MODULE 3

AUTHOR’S THOUGHTS 4

INTRODUCTION TO ELLIOTT WAVE 5

R.N. ELLIOTT’S LEGACY 7

BASIC SEQUENCE & WAVE PATTERN 8

QUICK FACTS & GUIDELINES 10

Sit back and surf the waves, it’ll be worth your while!

www.orbex.com 2
ELLIOTT WAVE PRINCIPLE – COURSE MODULE
This course is delivered in a way that allows you to develop a whole new approach to trad-
ing or to perfect your current strategy. Besides the Elliott Wave Principle, it will also include
Fibonacci Mathematical Measurements, Consolidation Areas, Points of Interest or Vibra-
tion Levels, Divergences (Differences in the Price Action), Types of Structure, and so much
more.

The course will be delivered in a series of EBooks to allow you to progress through the
course at your own pace.

Before we get started on the Elliot Wave Course and talk about how this Principle can be
applied to Forex & CFD trading, please be aware that that the following material has been
published for educational purposes only and should not be considered as immediate
investment advice. Should you attempt to use any of the information provided, please
acknowledge the risks involved.

www.orbex.com 3
AUTHOR’S THOUGHTS
The Elliott Wave principle is a
complex way of analyzing the
Financial Markets. It reveals
how trader sentiment works,
how people behave and the mass psychol-
ogy behind buying and selling the assets.
Some believe that this method is in fact
one of the main laws of the universe and it
can be applied to almost every aspect of
our lives... Well, we’re not going to stretch
it that far. Instead we’re going to discuss
how this exercise in probability can help
an Elliottician to identify Market’s Struc-
tures and to anticipate the next most likely
market movement, within the price action
on the charts of course.
We are talking here, about a catalog with
structured patterns concerning the way
crowds diverge from extreme points of
pessimism to extreme points of optimism.
It is a description of the steps human
beings experience when they are part of
the investment crowd. As you’ve probably
guessed; Price Action reflects the human
buy/sell emotions, which appear on the
charts as patterns. The Elliott Wave Tech-
nique is a road-map with which traders
classify patterns for their up-coming
trades. Many believe that the Market has
a pulse and a natural way of developing
price action. With this technique, Elliotti-
cians are often one step ahead of the
crowd.
In my personal opinion, this is by far the
most reliable leading analysis tool that a
trader can have in his/her arsenal and can
be a significant asset to you if applied
correctly.
www.orbex.com
This technique however, is known to be
very subjective among traders. There are
different types of approaches and traders
tend to begin using it, only to abandon the
technique at a later stage as they may not
fully understand the concept. Every trader
is different in his/her trading style and has
his/her own set-ups, so it will be up to the
individual trader to adapt the concept
their own trading strategy.
The challenge that most
Elliotticians face lies within
the structure types, reading,
mapping & labeling, hence
the reason for the subjectivity. This also
accounts for the reason why Wave Traders
tend to have a main count and an alter-
nate count acting as a back-up.
If you are new to the Elliott Wave Strategy,
it’s recommended to start with the basics
and to keep it simple in the beginning. This
should help you avoid any potential head-
aches. As your knowledge and hunger to
learn increases, you may choose to see
how far down the rabbit hole goes and
explore/apply more advanced techniques.
Within this Module we will discuss the
structures of the Elliott Wave Concept; the
types of waves, cycles, but most important-
ly how to start counting the right way and
how to apply the techniques onto your
charts.
This module will be split into two catego-
ries; a basic and an advanced approach.
4
BASIC MODULE
INTRODUCTION TO ELLIOTT WAVE PRINCIPLE

After a brief introduction into the Wave Principle and what it can do. Let’s take a step back
in time and assess why this trading technique intrigues so many people.

Who was this man?

Ralph Nelson Elliott was American accountant who, in the early 30’s, studied around 75
years’ worth of stock market data. The data consisted mostly of indexes from annual
data, all the way down to 30 min charts. He discovered that the Stock Market did not
move randomly and chaotically as it was initially believed to, and that it followed natural
laws, which could be measured and predicted using the Fibonacci sequence (golden
ratio). In short, Elliott identified that prices unfolded in specific patterns.
t

www.orbex.com 5
Elliott developed this amazing analytical tool in the 1930’s. Then in 1938, he published his
theory of market behavior in the book entitled ‘’The Wave Principle’’.

Elliott was a genius. His inspiration came from understanding the ‘Dow Theory’ which
then progressed to a point where he could measure and predict significant Stock Market
movement. Elliott understood the mechanics of trends and counter-trends and saw that
Charles Dow (the founder of modern technical analysis) had indeed been correct with his
theory. Elliott implemented his own thoughts and created a masterpiece, resulting in his
unbelievable and accurate predictions of the Stock Market Crash.

Conviction DOW THEORY

Enthusiasm

Confidence Hope
Growing recognition Disbelief

Caution Apprehension
Skepticism Shock & fear

Disdain Surrender
Disgust
Time

Elliott’s theory intrigued many, especially after the book with the same name, “The Wave
Principle” was published in 1978. In the book Robert Prechter and A.J. Frost rescue Elliott’s
discovery from obscurity.

So, you see, even after more than 80 years, this amazing theory and pattern is still being
used by hundreds of thousands of traders and investors worldwide.

What, why and how?

When setting goals, it is a must to ask these three questions. Thus far, we have covered the
‘’what’’ in the Elliott Wave explanation. The ‘’why’’ is very simple: Wave Traders use this tech-
nique to trade better or more successfully and aim to generate a certain profit consistency. But
“how”? That, my fellow traders, is the million-dollar question. The answer lies within the course.

www.orbex.com 6
R.N. ELLIOTT’S LEGACY
As previously discussed in the Author’s thoughts; Elliott believed that market cycles came
about from investor reactions. The price action movements reflect investors buy or sell
sentiment. Market cycles can be broken down into repetitive patterns which can then be
broken down into waves. These waves are what we will be identifying, counting and
analyzing in Elliot wave analysis.

Wave 2
can
NEVER
go
b yond
e
the start
of
Wave 1

Before we begin learning about patterns in the concept, we must remember that there
are 3 commandments, stated by R.N Elliott that are imperative to the theory:

Impulse Wave 3 can never be the shortest wave

Wave 2 can never retrace beyond the start of Wave 1
Wave 4 can never cross into the same price area as Wave 1

These rules, just like all rules in general, are bent sometimes, so don’t be afraid to think
outside the box and question everything.
What I would suggest is that when one of these 3 rules are broken, then a review needs
to be done for the wave count.

With that being said, next we’re going to go over some important bullet-points to be
treated as guidelines when using Wave Analysis.

www.orbex.com 7
BASIC SEQUENCE & WAVE PATTERN
There are 2 choices that one can make when applying the Elliot Wave theory to his/her
charts and when counting the waves, Simple and Advanced. The Simple technique implies
counting the waves normally (without any solid understanding) and the Advanced implies
going more technical and recognizing the Impulsive or Corrective structure type.

We will start with the Simple Approach and then move towards the Advanced one and
expand our trading senses.

3 B

1
4 5 A

3 C
2 5

5
3 5

3 5

The Market has a law of its own and the progression unfolds in ‘’Waves’’, as R.N. Elliott
called each Price Action Swing.

www.orbex.com 8
 5

3 B

1
4 5 A

3 C
2 5

5
3 5

3 5

Wave Sequence:
In a Dominant Trend, progress ultimately takes the form of 5 Waves, which are labeled with
numbers; 1,2,3,4,5.
Three of these swings, which are 1, 3 and 5, affect the overall direction in favor of the Domi-
nant Trend. These Swings are known as Motive Waves or Impulses.
Within the 5 Wave Sequence, the 3 Waves that unfold in favor of the Dominant Trend are
separated by 2 countertrend interruptions, which are labeled as 2 and 4. These Swings
represent a temporary interruption of the Impulse Waves, hence why they are called
Corrective Waves.
Simply put, the Wave Principle states that; a Full Cycle is made up of 8 Swings. The Market
moves with 5 Waves in the direction of the Main Trend with 3 Waves against it.
Once the Impulsive Phase is complete, then the Trend Corrective Legs unfold and act as a
pull-back. Labeled A, B & C.

Structures:
Impulsive or Motive Waves come in 3 forms: Extensions, Ending and Leading Diagonals.
Corrective Waves come in 5 forms: Zig-Zag, Flat, Triangle, Double & Triple Three.

www.orbex.com 9
 Time for some fun facts!

QUICK FACTS & GUIDELINES

Price Action moves in patterns and usually has the magic numbers set to 3 and 5.
A Bullish or Bearish Elliott Cycle is formed out of 3 Impulsive Waves (1, 3 & 5), 2 Correc-
tive Waves (2 & 4 which correct the impulsive 1 & 3) and then follows the Trend Correc-
tion legs - A, B & C.

So, if you don’t want to complicate things, you can apply the basic theory, 12345-ABC, simple
right? BUT! It’s not that simple, if only it would be.
If you aspire for greater accuracy levels, then the advanced technique would be of benefit.

Impulsive or Corrective Waves are Fractal by nature meaning that they are usually
formed from other Elliott Waves. So, you will find an Elliot Wave within a larger Elliot
Wave as each wave has ‘sub-waves’.
Impulse Wave 3 is usually the strongest swing but sometimes 5 can be just as strong.
Traders can take profit on the 3rd Impulsive Wave then after the 4th Retracement
Wave, they can get in again on the 5th Impulsive Wave. Or simply put, traders became
accustomed to the Elliott method and this is why the 5th Wave tends to have a bigger
impact on the charts, especially in the commodities market.
Most of the time, Impulse 3 contains an extension, which would imply Impulse 5 has the
same length as Impulse 1.
Corrective Waves 2 & 4 can have 2 forms; Simple (3 moves) and Complex (5 moves). If
Wave 2 is Simple, then Wave 4 will be Complex and vice versa, due to the Law of Alterna-
tion. Usually, corrective wave 2 unfolds with a Zig-Zag Structure.
Sometimes, on rare occasions, the C Corrective Wave can transcend into Impulse Wave1.
Wave C always unfolds with a 5 Wave Sequence.
Wave B and Wave X always unfold with a 3 Wave Sequence and are known to be the
cause of Market uncertainty, fake break-outs or even Structure change.tt

www.orbex.com 10
 ABC Correctives can provide a strong gain, depending on the size of the Impulsive Waves.
This is because at the end of the 5th Wave, Divergences occur giving Traders the possibili-
ty to spot the difference in the price action.
For example in an up-trend a new high would be created while the volumes would
decrease, meaning that Bulls pushed the Market higher but they are not justifying a
continuation with enough liquidity, leaving room for Bears to take over.
When the Market goes into a Correction, the correction itself would often end its first
swings inside the price territory of the previous Wave 4 of a lesser degree. This is valid
exclusively for a Wave 4 which would end in the territory of the previous Wave 4, within
the main Impulse 3.

www.orbex.com 11
Risk warning: Forex, Commodities and CFDs (OTC Trading) are leveraged products that
carry a substantial risk of loss up to your invested capital and may not be suitable for
everyone. Please ensure that you understand fully the risks involved and do not invest
money you cannot afford to lose. The information provided can under no circumstances
be considered as a recommendation to engage in any trade. © Orbex Limited All rights
reserved Our company is licensed by the Cyprus Securities & Exchange Commission -
(CySEC – License Number 124/10), which has been passported in the European Union
through the MiFID Directive.