Basically, there are five waves up, follow by three waves down and then the whole process repeats itself.
Wave 1
This is an impulse wave and often reverses from the previous trend like end of wave c. It normally terminates on the first
resistance/support level
on the chart. Wave 1 can also subdivide into five little waves (1 to 5) as shown above. It is often the shortest of all waves.
Wave 2
This is a retracement of wave 1, known as corrective wave. This normally dips to a
fibonacci retracements
of 0.382 to 0.941 of wave 1. Quite often, it retraces to 0.618 of wave 1, but it can never retraces more than wave 1, otherwise it's not wave 2.
Wave 2 can also subdivide into three little waves, namely a, b and c.
Wave 3
This is normally the longest wave of all 5 Elliott waves. So to make tons of money, jump on board this wave!
Wave 3 is a certain percentage external retracement of wave 2 and wave 1, but often terminates at the
golden fibonacci retracements ratio of 1.618.
It can also subdivide into five little waves as well.
Wave 4
This is a corrective wave and a retracement of wave 3. Although Elliott stated that wave 4 can not retrace into wave 2/ pass wave 1, I have seen it happened on many occasions.
Generally, wave 4 retraces certain percentage of wave 3, normally in the range of 0.382 to 0.618. But I have seen it gone just below the peak of wave 1 before.
Wave 4 can also subdivide into 3 little waves a, b and c.
Wave 5
This is the last uptrend wave in the series and often forms a diagonal triangle shape and also a butterfly shape which often implies end of trend is near.
This is a certain percentage of wave 3 and wave 1. When these two fibonacci prices meet, the end of wave 5 is imminent and a big fall will follow!
It can also subdivide into 5 little waves.
Wave A
Wave A to C is a retracement of all 5 waves. You use technical indicators such as MACD divergence as well as fibonacci retracement to predict where wave A ends.
Wave A can either sub divide into 3 or 5 little waves.
Wave B
This is a retracement of wave A. This can be any percentages, but normally terminates at 0.618 of A.
Wave B can subdivide into 3 little waves a, b and c.
Wave C
This is normally the longest of the corrective/retracement waves. But once again, it can be any percentage retracment of all 5 waves.
From what I have seen, normally it's same length as wave A and also 1.618 of B. Wave C can also subdivide into 5 little waves.
These are just the basics and there are lots to consider. Sometimes, these patterns are literally staring at you, other times it could be quite confusing and difficult to spot,especially on wave 2 and 4 where they are developing zig-zag patterns or wedge/pennant patterns. But if you are not sure, just trade wave 1-3 or a-c as they all have minimum 3 waves.
Want To Learn More ?
You can learn more by becoming a free member at Elliott Wave International. Bob Prechter Of Elliott Wave International correctly predicted the 1987 stock market crash using Elliott Wave Strategies. So, you can learn from experts in this field from this site. Here is a video clip of Bob Prechter speaking on Bloomberg television.
Robert Prechter | Oct. 19, 2007
Bob speaks with Bloomberg's Pimm Fox about the risks to stocks and commodities – a year ago – on the 20th anniversary of the 1987 crash.
You can download the following free Elliott wave articles, courtesy of Elliott Wave International and sign up as a free member to access to online free learning stuffs. I still receive free articles and sometimes video and learn a few tips that I did not know!
For those of you who know these Waves Theory/patterns already, but want to do the analysis yourself, please click on
waves analysis
page where I will show you some tools to take it to the next level to predict future stock market turning points.
