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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
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
2
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)
1
2
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Elliott Channel (2)
1
2
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3
Elliott Channel (3)
4
1
2
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Elliott Channel (4) 5
3
1 4
2
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3?
Elliott Channel (5)
1
(1) 5
3 b 2
a
1 4 (2) c
2
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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
2
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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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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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