Brief Introduction to Elliott Waves

Here is a brief introduction to the Elliott Wave Principle as described in Elliott Wave Principle, the definitive book on Elliott waves. According to R. N. Elliott, the founder of the Elliott Wave Principle, markets move in waves, which are patterns of directional movements of prices.

The fundamental building block of the Elliott Wave Principle is the basic wave that consists of five waves. Waves 1, 3 and 5 set the direction of the move and waves 2 and 4 temporarily correct the directional move. You will find the five-way pattern in all types of price charts from one-minute, daily, monthly, annual and beyond.

One complete cycle of prices consists of a five-wave motive phase (called a "five") and a three-wave corrective phase called a "three". The corrective phase corrects the motive phase of the cycle.

In terms used on buypside.com the five-wave motive phase in this example is a price upside and the three-wave corrective phase in a price downside. Not all motive phases are in an upside direction. You could have a five-wave motive phase headed down with a three-wave corrective phase temporarily pushing prices up.

According to the Elliott Wave Principle the basic eight-wave patterns occurs at all scales from minute-to-minute price patterns, hourly, daily, monthly, annual and beyond.

See Trading with Elliott Waves for more information.

Updated June 25, 2009.