Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
In the 1930s, Ralph Nelson Elliot discovered price movements adhere to certain patterns,
composed of what Elliot titled: waves, consequently ring the opening shot in a decades-
long debate.
Fascinating as it is, the theory is a broad and complex topic within the eld of technical
analysis, invariably taking practitioners years to master. Despite its complexity, though, the
https://www.icmarkets.com/blog/elliot-wave-theory/ 1/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
foundations of Elliott wave theory are easy to understand and apply, and therefore could be
incorporated almost immediately.
The basic wave principle (or pattern) involves a ve-wave count and forms as market prices
travel up or down.
The overall pattern forms an uninterrupted con guration in that the end of one wave marks
the beginning of another wave ( gure 1.1).
(Figure 1.1)
The ve-wave sequence, labelled 1-5, is a complete motive wave – it propels the market in
the direction of the primary trend. Sub waves 1, 3 and 5 are also labelled motive waves, while
sub waves 2 and 4 are corrective waves as they interrupt the main trend.
After a ve wave sequence completes, the corrective wave begins. The corrective wave
partially retraces the movement developed by the motive wave. It follows a three-wave
https://www.icmarkets.com/blog/elliot-wave-theory/ 2/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.2)
Another consideration is fractals (timeframes): the ability for trends and patterns to act
similarly over different periods. Essentially all waves are part of other waves at a greater
degree and are also divisible into waves at a lesser degree.
To illustrate, gure 1.3 shows wave 1 incorporates a lesser scale ve-wave sequence, and wave
2 incorporates a three-wave corrective arrangement:
https://www.icmarkets.com/blog/elliot-wave-theory/ 3/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.3)
Motive waves
The impulse wave is the strongest form of motive wave ( gure 1.4), following three rules:
Wave 3 is never the shortest, though it does not have to be the longest.
https://www.icmarkets.com/blog/elliot-wave-theory/ 4/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.4)
Waves 1 and 5 are always motive waves (either an impulse or [leading] diagonal/[ending]
diagonal wave), while wave 3 is, at all times, an impulse wave. Waves 2 and 4 are always
corrective waves (the piece covers both diagonal and corrective formations shortly). As such,
the structure count is 5-3-5-3-5.
The diagonal wave, although still a motive wave, differs from impulse waves.
The rst two rules of an impulse wave applies to a diagonal wave sequence, but rule 3 (wave
4 can never enter the price territory of wave 1) is not followed. Wave 4 frequently penetrates
wave 1.
Two types of diagonal patterns exist, representing a contracting con guration: ending and
leading.
Both ending and leading diagonals have wave 3 shorter than wave 1, wave 5 shorter than
wave 3 and wave 4 shorter than wave 2, thus forming a contraction. The formation has its
borders limited by two converging trend lines, denoting a ‘wedge’ shape.
An ending diagonal occurs in wave 5 of an impulse wave, or the last wave of a corrective
pattern: wave C of zigzag or at patterns. The ending diagonal often develops when the
preceding trend has run out of steam.
https://www.icmarkets.com/blog/elliot-wave-theory/ 5/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
The wave-structure of an ending diagonal is different from the impulse wave. Sub waves
1,2,3,4 and 5 take on a corrective wave formation: a three-wave arrangement. The impulse
wave, as highlighted above, has a structure count of 5-3-5-3-5, whereas the ending diagonal
has a structure count of 3-3-3-3-3.
Figure 1.5 shows an ending diagonal in a bull market that typically concludes with a move to
the downside. An ending diagonal ipped on its head contains the same parameters and
generally ends with a move forming to the upside (an ending diagonal in a bear market).
(Figure 1.5)
In a leading diagonal formation ( gure 1.6), waves 1, 3 and 5 are either all impulse waves or all
correction waves in the form of zigzags. Waves 2 and 4 are always zigzag patterns. A leading
diagonal can form wave 1 of an impulse wave and the rst wave of a zigzag, labelled wave A
in a corrective pattern.
https://www.icmarkets.com/blog/elliot-wave-theory/ 6/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.6)
Extension is also an important aspect to be aware of. In an impulse wave, usually one of the
motive waves, often waves 3 or 5, is extended or elongated.
Third wave extensions are often observed in the stock market, while fth wave extensions are
predominant in the commodities market.
If wave 1 extends, traders can expect waves 3 and 5 to be about equal in length.
If waves 1 and 3 are about equal length, expect wave 5 to experience some form of
extension.
Corrective waves
Trending markets invariably come across interruptions or pullbacks, termed corrective waves
in Elliot wave theory.
https://www.icmarkets.com/blog/elliot-wave-theory/ 7/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
Elliot wave theory helps de ne corrections and identify potential ‘completion’ using zigzag,
at and triangle arrangements. This is helpful for traders looking to buy/sell corrections
within a trend.
Zigzag is a three-wave corrective pattern labelled A-B-C. Zigzags split as a 5-3-5 structure:
the A leg contains 5 sub waves, the B leg holds 3 sub waves and the C leg houses 5 sub
waves. Wave A should always represent either an impulse or leading diagonal formation.
Wave B is always a corrective wave: a zigzag, ag, triangle or combination, and wave C is
always an impulse or ending diagonal.
Zigzags appear in the construction of many of the Elliott wave patterns. Figure 1.7 displays a
zigzag corrective wave.
(Figure 1.7)
Wave B can never retrace beyond the beginning of wave A, and wave C should always travel
beyond wave A’s end. Should wave C fail to push past wave A, a truncated wave emerges. A
truncation occurs if wave 5 (in an impulse wave) fails to terminate beyond the end of wave 3.
Flat, labelled A-B-C, is also a three-wave corrective pattern present in the markets. Wave C is
always a motive wave (impulse or an ending diagonal) and waves A and B are always
corrective waves. Therefore, the at is a 3-3-5 structure.
https://www.icmarkets.com/blog/elliot-wave-theory/ 8/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
Regular ats typically have wave B terminating at the same level as the beginning of wave
A, and wave C ends slightly past the end of wave A ( gure 1.8).
A running at has wave B breaching the beginning of wave A, with wave C failing to reach
the end of wave A ( gure 1.9).
The expanded at reminds of a whipsaw formation. Wave B concludes beyond the start of
wave A and wave C terminates noticeably beyond the end of wave A ( gure 1.10).
(Figure 1.8)
https://www.icmarkets.com/blog/elliot-wave-theory/ 9/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.9)
(Figure 1.10)
Triangle is a corrective wave that houses sub waves A-B-C-D-E. In the majority of cases, all
sub waves within a triangle structure are zigzag patterns. Triangles are, therefore, labelled as
3-3-3-3-3 structures. You may sometimes nd one of the sub waves forms another triangle,
typically found at waves C, D or E (only one of these sub waves should exhibit complexity,
though).
Figure 1.11 shows the three types of triangles: contracting, barrier and expanding:
https://www.icmarkets.com/blog/elliot-wave-theory/ 10/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.11)
Contracting and barrier triangles house converging trend lines, while an expanding triangle
has diverging trend lines.
In a contracting formation, wave C never penetrates beyond wave A; wave D never extends
beyond wave B and wave E also never extends past wave C. Barrier and contracting triangles
are of similar structure with one exception: the former has waves B and D terminate at about
the same level.
Fibonacci
Elliot wave analysis also adopts key Fibonacci relationships. This can become somewhat
complicated, particularly for newer traders. For that reason, the following will demonstrate
only a foundational view for the purpose of this article.
Fibonacci retracements
https://www.icmarkets.com/blog/elliot-wave-theory/ 11/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
For impulse waves, the second wave typically corrects into deep territory of its preceding
wave, near the 61.8% Fibonacci retracement value ( gure 1.12). Fourth waves (another
corrective wave), on the other hand, tend to be shorter, generally correcting towards the
38.2% Fibonacci retracement value of wave 3 ( gure 1.13).
This, alongside other corrective formations (above), helps formulate a ‘termination point’ in
which price action should halt.
(Figure 1.12)
https://www.icmarkets.com/blog/elliot-wave-theory/ 12/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.13)
Fibonacci multiples
In an impulse wave, wave 5 will often equal 61.8% or 38.2% times the net distance travelled of
waves 1 through 3 ( gure 1.14/15).
https://www.icmarkets.com/blog/elliot-wave-theory/ 13/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.14)
https://www.icmarkets.com/blog/elliot-wave-theory/ 14/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.15)
If wave 3 is elongated, traders can expect waves 1 and 5 to be of equal length. A wave 5
extension, however, can travel 1.618 times the net distance travelled of waves 1 through to 3
( gure 1.16).
https://www.icmarkets.com/blog/elliot-wave-theory/ 15/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
(Figure 1.16)
In the event wave 1 extends, traders should look for the distance of waves 3 through to 5 to
equal 61.8% of the length of wave 1.
Although the article barely scratches the surface in terms of Elliot wave analysis, it does
provide a foundation to build upon.
Successful traders around the world adopt Elliot wave analysis and many indicate
consistency using this trading strategy. It will, nonetheless, take time to pin down the
https://www.icmarkets.com/blog/elliot-wave-theory/ 16/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
theory’s subtle nuances and understand how to best apply it to the market that ts with
your personality and trading style, though it is time well spent.
Ex-dividends 28.05.2019
MAY 27, 2019
RECENT POSTS
Monday 15th July: Asian markets edge higher as Chinese economic data meets
Jul expectations
15,
2019
Friday 12th July: Asian markets edge up as Singapore irts with recession
Jul
12,
2019
Friday 12th July: Dollar index steady around 97.00 ahead of producer price index
Jul release.
12,
2019
Thursday 11th July: Asian markets rise on renewed hopes of Fed’s rate cut
https://www.icmarkets.com/blog/elliot-wave-theory/ 17/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
Jul
11,
2019
LIVE SPREADS
EURUSD
BID ASK SPREAD
1.12578 1.12578 0
AUDUSD
BID ASK SPREAD
0.70389 0.70391 0.2
GBPUSD
BID ASK SPREAD
1.2517 1.25172 0.2
USDJPY
BID ASK SPREAD
107.88 107.88 0
USDCAD
BID ASK SPREAD
1.30502 1.30502 0
GBPJPY
BID ASK SPREAD
135.033 135.035 0.2
ARCHIVES
Select Month
CATEGORIES
Company News
Education
Ex Dividends Indices
https://www.icmarkets.com/blog/elliot-wave-theory/ 18/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
Ex Dividends Stocks
Featured
Fundamental Analysis
Market Analysis
Press Releases
Recent
Technical Analysis
Uncategorized
https://www.icmarkets.com/blog/elliot-wave-theory/ 19/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
Trade with
the world’s largest True ECN forex broker
https://www.icmarkets.com/blog/elliot-wave-theory/ 20/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
Forex Trading
What is True ECN
Accounts Overview
Open an Account
Range of Market
Trading Hours
Funding
Withdrawal
About IC Markets
Chat with a Specialist 24/7
Why IC Markets
Regulation
Legal Documents
Contact Us
IC Markets does not accept applications from residents of the U.S, Canada, Israel and Islamic
Republic of Iran. The information on this site is not directed at residents in any country or
jurisdiction where such distribution or use would be contrary to local law or regulation.
IC Markets does not issue or sell cryptocurrencies nor is it a digital currency exchange service
provider. IC Markets is the issuer of over-the-counter derivatives such as CFDs over various
underlying instruments or other assets including cryptocurrencies.
Risk Warning: Trading Derivatives carries a high level of risk to your capital and you should only
trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so
please ensure that you fully understand the risks involved, and seek independent advice if
https://www.icmarkets.com/blog/elliot-wave-theory/ 21/22
7/16/2019 A Primer to Elliot Wave Theory | IC Markets | Official Blog
necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on
request from our of ces and should be considered before entering into a transaction with us. True
ECN accounts offer spreads from 0.0 pips with a commission charge of AUD $3.50 per 100k traded.
Standard account offer spreads from 1 pips with no additional commission charges. Spreads on
CFD indices start at 0.4 points. The information on this site is not directed at residents in any
country or jurisdiction where such distribution or use would be contrary to local law or regulation.
International Capital Markets holds an Australian nancial services licence (AFSL) to carry on a
nancial services business in Australia, limited to the nancial services covered by its AFSL.
International Capital Markets Pty Ltd. ACN 123 289 109. AFSL No. 335692.
https://www.icmarkets.com/blog/elliot-wave-theory/ 22/22