Elliott Wave Pattern

In the late 1920's, Ralph Elliott discovered that markets have a rhythm and markets travel in a series of wave patterns. Elliott suggested markets move in 5 strength wave (impulse) and 3 correction waves.

The Elliott Wave theory is complex and is very subjective for each trader. This pattern occurs in all markets and in all time-frames. The Elliott Wave has few complex rules. The wave patterns are briefly described below:

Wave 1 (Wl): The smallest of the Elliott waves and the start of the "fractal wave" pattern.

Wave 2 (W2): A retracement wave. Wave 2 should not trade below lows of Wave 1.

Wave 3 (W3): Longest and strongest of the entire wave count. Must trade above the "high" of Wave 1.

Wave 4 (W4): Usually called the "profit wave." Traders, who came in at Wave 1, will take profits. Wave 4 does not trade below Wave 2's high.

Wave 5 (W5): Also called "greed wave" or "overpriced wave." Exhaustion price movements occur before a serious correction.

After 5 wave patterns, markets form an ABC pattern in a three corrective waves fashion before another series begins.

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