Technical Analysis: Elliott Wave Theory Basics

R. N. Elliott developed his wave theory in 1934. It is a method for explaining stock market movements.

Elliott Wave Technical Analysis rules and guidelines applied to the charts, and will help you trade and invest successfully through a better understanding of the market to maximize opportunity and minimize risk.

Under the Elliott Wave Principle, every market decision is both produced by meaningful information and produces meaningful information. Each transaction, at once affects to the market and, by communicating transactional data to investors, causes other's behavior.

According to the Elliott Wave Theory, stock prices tend to move in a predetermined number of waves. Elliott believed the market moved in five distinct waves on the upside (Motive or Impulse Wave) and three distinct on the downside (Corrective Wave).

Motive wave structure is denoted by numbers (1-2-3-4-5) and, corrective wave structure is denoted by letters (a-b-c).

Market cycles are composed of Motive Wave and Corrective Wave, So one complete cycle consists of eight waves.

Elliott Wave degrees

An important feature of Elliott Wave Theory is that they are fractal in nature. 'Fractal' means market structure is built from similar patterns on larger or smaller scales. Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart

Elliott Wave theory categorizes waves by relative size, or degree. Elliott discerned nine degrees of waves, and chose the names listed below to label these degrees, from largest to smallest:

1.Grand Supercycle
2.Supercycle
3.Cycle
4.Primary
5.Intermediate
6.Minor
7.Minute
8.Minuette
9.Sub-Minuette

The major waves determine the major trend of the market, and minor waves determine minor trends.

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About the Author:
By Mostafa Soleimanzadeh. Learn Investing in the Stock Market in his website.