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Characteristics of Elliott Wave

Like many things Elliott Wave theory can be simple or complex, it's up to you. The basic premise is that high volume, free markets (no Government intervention over the long haul) are subject to the individual investors hopes (greed) and fears en masse. These emotional capitulations are reflected graphically at any point of any day by price. Portraying these swings in chart form provides a picture of the current market psychology. In the earlier part of this century Ralph Nelson Elliott promulgated tools with which to interpret the chart patterns and hence, the name of the theory.

Elliott described each wave as exhibiting a characteristic volume behavior and a "personality" in terms of attendant momentum and investor sentiment. The "personality" of a wave reflects the psychology of the moment. Understanding how and why the waves develop is key to the application of the Wave Principle and confirms a correct wave count. That understanding includes recognizing the characteristics of the 8 waves (5 impulses and 3 corrective).

In the Elliott Wave Theory, a special attention is paid to individual description of each wave. Besides, there are certain laws used for proportional formations of Elliott waves. These laws enable proper definition of where the wave starts and how long it is. In the following table, the wave lengths are measured from high to low of the corresponding wave.

Wave Classical Relations between Waves
1 -
2 0.382, 0.5, or 0.618 of Wave 1 length
3 1.618, 0.618, or 2.618 of Wave 1 length
4 0.382 or 0.5 of Wave 1 length
5 0.382, 0.5, or 0,618 of Wave 1 length
A 1, 0.618 or 0.5 of of Wave 5 length
B 0.382 or 0.5 of Wave A length
C 1.618, 0.618, or 0.5 of Wave A length

The above classical relations between waves are confirmed by actual ones with a 10%-error. Such error can be explained through short-term influences of some technical or fundamental factors. In whole, the data are rather relative. Important is that all relations between all waves can take values of 0.382, 0.50, 0.618, 1.618. Using this, we can calculate relations between both wave heights and wave lengths.

Calculations within the Elliott Wave Theory resemble a road-map. Every wave has a set of characteristics. These characteristics are based on market behavior of masses. The wave characteristics assume a bull market in equities. The characteristics apply in reverse in bear markets too. Let us consider these characteristics of each wave :

  1. Characteristics of Impulse Waves
  2. Characteristics of Corrective Waves

Elliott wave

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