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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 3 2
Waves (3) 5
(b) c
1
b 4 1 4 a
3 2
3
a 2
b 4
(a) 5 1
1
(1) 5 4 (4) c
3
3 b
2 (c) 5
1 a By counting waves in the long
4 term to short term charts,
(2) c 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

1
2
4

2 Wrong Correct
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3rd wave 5

should not be 3
the shortest 1
4
among 1st, 3rd
2 Wrong
and 5th wave
(iii)

(i)
1
(ii)
2
Correct
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4th wave 5

should not 3

overlap with 1

the 2nd 4 Wrong

wave 2

(except for (iii)

diagonal (i)

triangle) 1

(ii)
2
Correct

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Rule of 5

Alteration – 3

2nd and 4th Correct

wave take 1
4
different 5
2
forms
3

1 4

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 3rd wave 5th wave
extension 5 extension 5 extension 5

3
3

4 4
1 3

1
2 4
1
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 Expanding
diagonal diagonal
Triangular 5 triangular 5
5th wave 5th wave
3 3

4 4
1 1

2 2

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Contracting 5
Expanding 5
diagonal diagonal
3
triangular 3 triangular
1st wave 1st wave
4 1 4
1

2 2

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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 Downward 5th wave

failure failure
3 5

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) (iv) a

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

(iii)

c c (v)

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Flat (3-3-5)

b bc

b a (ii)

(i) (iv)
a b

a ac
(iii)

c c (v)

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Irregular (3-3-5)

b bc

b a (ii)

(i) (iv)
b
a
a ac
(iii)

c c (v)

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Horizontal Triangle (3-3-3-3-3)
b b
d d
Contracting
horizontal
triangle e e
c
c
a
a d
d b
b
Expanding
horizontal
triangle a

c a c
e e
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Double-three
x b
b

a bc c a c
xc
(ii)
b a (ii)
a (i) (iv) a bc
(i) (iv)
a b (ii)
(iii)
b b
ac a (i) (i) (iv)
(iii)
(iii)
c (v) c (v)

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Triple-three
x b
b x b

a c a c a c
bc bc

xc xc a
(ii) (ii)
b a (ii) b
(i) bc (iv)
a
(i) (iv) (iv) a b (i)
a b (ii) a a
(iii) ac
b (iv)
ac b b (iii)
(iii) a (i) (i)
(iii) c (v)
c (v) c (v)
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Elliott Channel (1)

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Elliott Channel (2)

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Elliott Channel (3)

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Elliott Channel (4) 5

1 4

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3?

Elliott Channel (5)

(1) 5

3 b 2

a
1 4 (2) c

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(3) 5

Elliott Channel (6) 3

1 4

(1) 5

3 b 2

a
1 4 (2) c

2
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(5) 5?
Elliott Channel (7) (3) 5

b
3
a

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

a
1 4
(2) c

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

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

a
1 4
(2) c

2
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Elliott Channel (9) 3 2

(3) 5
1 4
b 4 1

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

3 b
2
a
1
4
(2) c

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Elliott Channel (10) 3 2

(b) c

(3) 5 a
1 4
b 4 1

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

3 b
2
a
1
4
(2) c

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(5) 5

Elliott Channel (11) 3 2

(b) c

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

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