Chartanalysen Square - Theories

The Elliott Wave Theory

Based on the Dow theory Ralph Nelson Elliott developed (28/07/1871 - 01/15/1948) from 1932 to 1934 that bears his Elliott Wave Principle. His theory of undulating cycles in the financial markets is very well defined, subject to clear rules and uses the Fibonacci numbers.

Elliott quickly realized that the movements in the financial markets were not chaotic, but recurring patterns followed. This can be compared with some ebb & flood, summer & winter, systole and diastole, or tensing and relaxing.
The central idea of this theory is that massenpsyhologische actions and reactions always lead to similar structures. This wave structure can again be divided into a fractal manner.

Published in 1978, American authors Alfred John Frost and Robert R. Prechter, who can be described as enthusiastic apprentices by Elliott, the book "Elliott Wave Principle" and thus ensured for sustainable dissemination of this theory.

Principles of Elliott Wave Theory

1. The Five-Wave Pattern

The basic pattern of price movements is composed of five waves, which are divided into three drive shafts and two corrective waves. As a drive shaft 1, 3 & 5 refers to an impulsive movement in direction of the main trends. The corrective wave 2 and 4, however, are only temporary pullback before a new pulse can follow.

Grundmuster der Elliott-Wellen-Theorie

2. Complete Cycle

A complete cycle consists of eight waves and is divided into two phases. The driving stage with the known five-wave pattern, and from the three-wave correction phase, the waves are not marked with numbers, but with a letter (A, B, C-correction)

Vollständige Struktur der Elliott-Wellen

3. Complete Market Cycle

By the fractal structure can be discerned the different waves at different time levels. The following figure shows a full market cycle consisting of the drive phase I and phase II of the correction
In the fractal breakdown of this overall cycle of the close relationship to the Fibonacci numbers is (1,2,3,5,8,13,21,34,55,89,144, ...) clearly.

Kompletter Marktzyklus der Elliott-Wellen-Theorie

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