Elliot wave theory Lesson 1 Flashcards
“The Wave Principle” is Ralph Nelson Elliott’s discovery that social, or crowd, behavior trends and reverses in recognizable patterns. Using stock market data as his main research tool, Elliott discovered that ___________________________________________________________
the ever-changing path of stock market prices reveals a structural design that in turn reflects a basic harmony found in nature
Elliott developed a rational system of .
market analysis
Elliott isolated thirteen patterns of ___________or _____________ that recur in market price data and are ___________________, but are not necessarily repetitive in time or amplitude.
movement, or “waves,”
repetitive in form
In a nutshell, then, the Wave Principle is a catalog of price patterns and an explanation of
where these forms are likely to occur in the overall path of market development.
Elliott’s descriptions constitute a set of empirically derived rules and guidelines for_____________________________. Elliott claimed predictive value for The Wave Principle
interpreting market action
The primary value of the Wave Principle is that it provides a context for
market analysis.
Many areas of mass human activity follow the Wave Principle, but the is where it is most popularly applied
stock market
Under the Wave Principle, every market decision is both produced by __________ and produces ______________
meaningful information
Each transaction, while at once an effect, enters the fabric of the market and, by communicating transactional data to investors, _______________________________. This feedback loop is governed by man’s social nature, and since he has such a nature, the process generates forms. As the forms are repetitive, they ____________________.
joins the chain of causes of others’ behavior
have predictive value
In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled ___. ______.and _______, actually effect the directional movement
1, 3 and 5
The Five Wave Pattern
In markets, progress ultimately takes the form of five waves of a specific structure. Three of these waves, which are labeled 1, 3 and 5, actually effect the directional movement. They are separated by two countertrend interruptions, which are labeled ______ and______,
2 and 4
There are two modes of wave development: ___________and__________
motive and corrective
One complete cycle consisting of eight waves, then, is made up of two distinct phases, the five-wave _________ phase (also called a “five”), whose subwaves are denoted by numbers, and the three-wave __________ phase (also called a “three”), whose subwaves are denoted by letters. Just as wave 2 corrects wave 1 in Figure 1-1, the sequence A, B, C corrects the sequence 1, 2, 3, 4, 5 in Figure 1-2.
motive
corrective
When an initial eight-wave cycle ends, a similar cycle ensues, which is then followed by another five-wave movement. This entire development produces a five-wave pattern of ____________________________ than the waves of which it is composed
one degree (i.e., relative size) larger
It is neccessary to understand a crucial point: the graphic not only illustrates a larger version of the 5 wave pattern, it also illustrates _______________________________.
in the 5 wave pattern, each subwave 1, 3 and 5 is a motive wave that must subdivide into a “______,” and each subwave 2 and 4 is a corrective wave that must subdivide into a “______.” Waves (1) and (2) in the graphic, if examined under a “microscope,” would take the same form as waves [1]* and [2].
the 5 wave pattern itself, in greater detail
“five” and “three”
The Wave Principle, then, reflects the fact that waves of any degree in any series always subdivide and re-subdivide into waves of___________ and simultaneously are components of waves of ______________.
Lesser degree
Higher degree
observe that within the corrective pattern illustrated as wave [2], waves (A) and (C), which point downward, are each composed of five waves: 1, 2, 3, 4 and 5. Similarly, wave (B), which points upward, is composed of three waves: A, Band C. This construction discloses a crucial point: Motive waves _____________and_____________. The mode of a wave is determined not by its absolute direction but primarily by its _____________
do not always point upward, and corrective waves do not always point downward
relative direction
In summary, the essential underlying tendency of the Wave Principle is that action in the __________ direction as the one larger trend develops in five waves, while reaction ___________ the one larger trend develops in three waves, at all degrees of trend.
same
against
Number of Waves at Each Degree Impulse + Correction = Cycle
Largest waves __+__=2
Largest subdivisions __+__=8
Next subdivisions __+__=34
Next subdivisions __+__=144
Number of Waves at Each Degree Impulse + Correction = Cycle
Largest waves 1+1=2
Largest subdivisions 5+3=8
Next subdivisions 21+13=34
Next subdivisions 89+55=144
the termination of yet another eight wave movement (five up and three down) completes a cycle that automatically becomes two subdivisions of the wave of next higher degree. As long as progress continues, the process of building to greater degrees continues. The reverse process of subdividing into lesser degrees apparently continues indefinitely as well. As far as we can determine, then, all waves both ______________and___________________
have and are component waves.
Wave Degrees
Grand ____________
S___________
C________
P__________
I____________
M___________
M_________
M___________
Sub___________
Grand Supercycle
Supercycle
Cycle
Primary
Intermediate
Minor
Minute
Minuette
Subminuette
it can be difficult to decide what degree the initial smaller subdivisions are. The main reason for the difficulty is that wave degree is not based upon specific price or time lengths. Waves are dependent upon ____________, which is a function of both price and time. The degree of a form is determined by its size and position relative to ______________,______________, and_________________.
form
component, adjacent and encompassing waves.
Every wave serves one of two functions: __________or___________. Specifically, a wave may either advance the cause of the wave of one larger degree or interrupt it.
action or reaction
The function of a wave is determined by its relative direction. An actionary or trend wave is any wave that trends in the __________ direction as the wave of one larger degree of which it is a part. A reactionary or countertrend wave is any wave that trends in the direction _________ to that of the wave of one larger degree of which it is part.
same
opposite
waves _________the trend are numbers, waves ___________ the trend are letters.
with
against
Guidlines for Wave structure
- The end of wave 2 never moves below the beginning of___________
wave 1
Guidlines for wave formation
- Wave 3 is never______________
the shortest wave
Wave formation guidline
- The end of wave 4 never enters the peak of__________
wave 1
