Elliott Wave Theory

Elliott Wave Theory Inventor: Ralph Nelson Elliott

Back in the old school days of the 1920-30s, there was this mad genius and professional accountant named Ralph Nelson Elliott.

By analyzing closely 75 years worth of stock data, Elliott discovered that stock markets, thought to behave in a somewhat chaotic manner, actually didn’t.

When he hit 66 years old, he finally gathered enough evidence (and confidence) to share his discovery with the world.

He published his theory in the book entitled The Wave Principle.

According to him, the market traded in repetitive cycles, which he pointed out were the emotions of investors caused by outside influences (ahem, CNBC, Bloomberg, ESPN) or the predominant psychology of the masses at the time.

Elliott explained that the upward and downward swings in price caused by the collective psychology always showed up in the same repetitive patterns.

He called these upward and downward swings “waves”.

He believes that, if you can correctly identify the repeating patterns in prices, you can predict where price will go (or not go) next.

This is what makes Elliott waves so appealing to traders. It gives them a way to identify precise points where price is most likely to reverse. In other words, Elliott came up with a system that enables traders to catch tops and bottoms.

So, amidst all the chaos in prices, Elliott found order. Awesome, huh?

Of course, like all mad geniuses, he needed to claim this observation and so he came up with a super original name: The Elliott Wave Theory.

But before we delve into the Elliott waves, you need to first understand what fractals are.


Basically, fractals are structures that can be split into parts, each of which is a very similar copy of the whole. Mathematicians like to call this property “self-similarity”.

You don’t need to go far to find examples of fractals. They can found all over nature!

Fractals in Elliott Wave Theory

A sea shell is a fractal. A snow flake is a fractal. A cloud is a fractal. Heck, a lightning bolt is a fractal.

So why are fractals important?

One important quality of Elliott waves is that they are fractals. Much like sea shells and snow flakes, Elliott waves could be further subdivided into smaller Elliot waves.

Ready to be an Elliottician now? Read on!


Elliott Wave Theory艾略特波浪理论 1 回朔到1920-30年代,有一位疯狂天才和专业的会计师,名叫Ralph Nelson Elliott。











但在我们深入了解艾略特波浪之前,你需要先了解一下什么是 分形


基本上,分形的结构,可以分割成几部分,它们每一个副本都是非常的相似。 数学家喜欢把这种特性称为“自相似性”。


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一个贝壳是一个分形、一片雪花是一个分形、一片云是一个分形, 哎呀,连一个闪电也是一个分形。


艾略特波浪的一个重要特性就是它们也是分形。 就像贝壳和雪花,艾略特波浪可以进一步细分成更小的艾略特波浪。

准备好了吗? 继续阅读吧!

Impulse Waves

Mr. Elliott showed that a trending market moves in what he calls a 5-3 wave pattern.

The first 5-wave pattern is called impulse waves.

The last 3-wave pattern is called corrective waves.

In this pattern, Waves 1, 3, 5 are motive, meaning they go along with the overall trend, while Waves 2 and 4 are corrective.

Do not confuse Waves 2 and 4 with the ABC corrective pattern (discussed in the next section) though!

Let’s first take a look at the 5-wave impulse pattern. It’s easier if you see it as a picture:

Impulse Wave or 5-Wave Pattern
That still looks kind of confusing. Let’s splash some color on this bad boy.
Impulse Wave or 5-Wave Pattern in Color
Ah magnifico! It’s so pretty! We like colors, so we’ve color-coded each wave along with its wave count.

Here is a short description of what happens during each wave.

We’re going to use stocks for our example since stocks are what Mr. Elliott used but it really doesn’t matter what it is. It can easily be currencies, bonds, gold, oil, or Tickle Me Elmo dolls. The important thing is the Elliott Wave Theory can also be applied to the foreign exchange market.

Wave 1

The stock makes its initial move upwards. This is usually caused by a relatively small number of people that all of the sudden (for a variety of reasons, real or imagined) feel that the price of the stock is cheap so it’s a perfect time to buy. This causes the price to rise.

Wave 2

At this point, enough people who were in the original wave consider the stock overvalued and take profits. This causes the stock to go down. However, the stock will not make it to its previous lows before the stock is considered a bargain again.

Wave 3

This is usually the longest and strongest wave. The stock has caught the attention of the mass public. More people find out about the stock and want to buy it. This causes the stock’s price to go higher and higher. This wave usually exceeds the high created at the end of wave 1.

Wave 4

Traders take profits because the stock is considered expensive again. This wave tends to be weak because there are usually more people that are still bullish on the stock and are waiting to “buy on the dips.”

Wave 5

This is the point that most people get on the stock and is most driven by hysteria. You usually start seeing the CEO of the company on the front page of major magazines as the Person of the Year. Traders and investors start coming up with ridiculous reasons to buy the stock and try to choke you when you disagree with them. This is when the stock becomes the most overpriced. Contrarians start shorting the stock which starts the ABC pattern.

Extended Impulse Waves

One thing that you also need to know about the Elliott Wave Theory is that one of the three impulse waves (1, 3, or 5) will always be “extended”. Simply put, there will always be one wave that is longer than the other two, regardless of degree.

According to Elliott, it is usually the fifth wave which is extended. As time went by, this old school style of wave labeling has changed because more and more people started labeling the third wave as the extended one.

Check out this forum thread for more Elliott Wave diagrams.

5 – 3 波浪形态


前面的5浪形态称为 推动浪

后面的3浪形态称为 调整浪

在这个形态中,浪1、3、5是 驱动浪,这意味着它们总随着主趋势,而浪2和4是 回调浪



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我们将使用股票市场做为例子,因为艾略特先生原本是以股票为基础,但这其实没有什么问题。其实它更适合应用于分析货币、债券、黄金、石油或芝麻街Elmo 搔痒娃娃的市场价格。 最重要的是,艾略特波浪理论同样能被应用到外汇市场中。

股票最初的上涨趋势,这通常是因为一群人,突然间(由于各种真实或幻想的原因) 认为股票的价格相当便宜了,所以择机买进。这导致了价格的上涨。








Corrective Waves

The 5-wave trends are then corrected and reversed by 3-wave countertrends. Letters are used instead of numbers to track the correction. Check out this example of a smokin’ hot corrective 3-wave pattern!

ABC Corrective Wave Pattern
Just because we’ve been using a bull market as my primary example doesn’t mean the Elliott Wave Theory doesn’t work on bear markets. The same 5-3 wave pattern can look like this:
Reverse ABC Corrective Wave Pattern

Types of Corrective Wave Patterns

According to Elliott, there are 21 corrective ABC patterns ranging from simple to complex.

“Uh 21? I can’t memorize all of that! The basics of the Elliott Wave Theory are already mind-blowing!”

Take it easy, young padawan. The great thing about Elliott Wave is you don’t have to be above the legal drinking age to trade it! You don’t have to get a fake ID or memorize all 21 types of corrective ABC patterns because they are just made up of three very simple easy-to-understand formations.

Let’s take a look at these three formations. The examples below apply to uptrends, but you can just invert them if you’re dealing with a downtrend.

The Zig-Zag Formation

Zig-Zag Formation
Zig-zag formations are very steep moves in price that goes against the predominant trend. Wave B is typically shortest in length compared to Waves A and C. These zig-zag patterns can happen twice or even thrice in a correction (2 to 3 zig-zag patterns linked together). Like with all waves, each of the waves in zig-zag patterns could be broken up into 5-wave patterns.

The Flat Formation

Flat Formation
Flat formations are simple sideways corrective waves. In flats, the lengths of the waves are GENERALLYequal in length, with wave B reversing wave A’s move and wave C undoing wave B’s move. We say generally because wave B can sometimes go beyond the beginning of wave A.

The Triangle Formation

Triangle Formation
Triangle formations are corrective patterns that are bound by either converging or diverging trend lines. Triangles are made up of 5-waves that move against the trend in a sideways fashion. These triangles can be symmetrical, descending, ascending, or expanding.

Drop by our forums if you want to see the bullish and bearish versions of these Elliott Wave patterns.


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Elliott Waves Within an Elliott Wave

Like we mentioned earlier, Elliott waves are fractals. Each wave is made of sub-waves. Huh? Let me show you another picture. Pictures are great, aren’t they? Yee-haw!

Elliott Wave Theory
Do you see how Waves 1, 3, and 5 are made up of a smaller 5-wave impulse pattern while Waves 2 and 4 are made up of smaller 3-wave corrective pattern?

Always remember that each wave is comprised of smaller wave patterns. This pattern repeats itself…


To make it easy to label these waves, the Elliott Wave Theory has assigned a series of categories to the waves in order of the largest to the smallest. They are:

  • Grand Supercycle (multi-century)
  • Supercycle (about 40–70 years)
  • Cycle (one year to several years)
  • Primary (a few months to a couple of years)
  • Intermediate (weeks to months)
  • Minor (weeks)
  • Minute (days)
  • Minuette (hours)
  • Sub-Minuette (minutes)

A Grand Supercycle is made up of Supercycle waves which is made up of Cycle waves which is made up Primary waves, which is made up of Intermediate waves which is made up of Minor waves which is made up of Minute waves which is made up of Minuette waves which is made up of Sub-Minuette waves. Did you get all that?

Okay, to make things much clearer, let’s see how an Elliott Wave looks in real life.

Elliott Wave Theory IRL

As you can see, waves aren’t shaped perfectly in real life. You’ll also learn it’s sometimes difficult to label waves. But the more you stare at charts the better you’ll get.

Besides, we’re not going to let you go at it alone! In the following sections, we’ll give you some tips on how to correctly and easily identify waves as well as teach you how to trade using Elliott Waves. Surf’s up!


就像我们前面提到的,艾略特波浪也属于分形,每一浪都是由数个小波浪所组成的。 咦?让我给你看另一张图片。图片是伟大的,不是吗?哇哈哈!
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为了更简单的标识这些波浪的大小形态,艾略特波浪理论把它们从最大到最小的波浪,分配到一系列的等级类别中。 它们是:

• 超大级循环浪(Grand Superrcyclc)

• 超级循环浪(Supercycle)

• 循环浪(Cycle)

• 基本浪(Primary)

• 中型浪(Intermediate)

• 小型浪(Minor)

• 细浪(Minute)

• 微浪(Minuette)

• 次微浪(Subminuette)



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正如你看到的,波浪形态在实际例子中并不完美。 您也应该发现到,有时很难标志是第几级的波浪。 但你盯着图表看的时间越长,你就会辨识出更多级别的浪。


3 Cardinal Rules of the Elliott Wave Theory

3 Cardinal Rules of the Elliott Wave Theory

As you may have guessed, the key in using the Elliott Wave Theory in trading is all about being able to correctly identify waves.

By developing the right eye in recognizing what wave the market is in, you will be able to find out which side of the market to trade on, long or short.

There are three cardinal “cannot-be-broken” rules in labeling waves. So, before you jump right in to applying the Elliott Wave Theory to your trading, you must take note of the rules below.

Failing to label waves correctly can prove disastrous to your account.

3 Cardinal Rules of the Elliott Wave Theory

  • Rule Number 1: Wave 3 can NEVER be the shortest impulse wave
  • Rule Number 2: Wave 2 can NEVER go beyond the start of Wave 1
  • Rule Number 3: Wave 4 can NEVER cross in the same price area as Wave 1

Then, there are the guidelines that help you in correctly labeling waves. Unlike the three cardinal rules, these guidelines can be broken. Here they are:

  • Conversely, sometimes, Wave 5 does not move beyond the end of wave 3. This is called truncation.
  • Wave 5, more often than not, goes beyond or “breaks through” the trend line drawn off Wave 3 parallel to a trend line connecting the start of Waves 3 and 5.
  • Wave 3 tends to be very long, sharp, and extended.
  • Waves 2 and 4 frequently bounce off Fibonacci retracement levels.


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艾略特波浪理论的 3条基本原则

● 原则一:第三浪决不可能是最短的驱动浪

● 原则二:第二浪决不可能低于第一浪起点

● 原则三:第四浪决不可能会重叠到第一浪



● 有些例外时候,第五浪没有突破第三浪的顶部。

● 第五浪,经常会超出或“突破”第三浪顶部的趋势线,

● 第三浪的波动往往是非常大、激烈和延伸的。

● 第二浪和第四浪经常在斐波纳契回撤位置反弹。

How to Trade Forex Using Elliott Waves

Learn how to use Elliott Waves in your forex trading.

This is probably what you all have been waiting for – drumroll please – using the Elliott Wave Theory in forex trading! In this section, we will look at some setups and apply our knowledge of Elliott Wave to determine entry, stop loss, and exit points. Let’s get it on!

Hypothetical, will-most-probably-be-right scenario:

Let’s say you wanted to begin your wave count. You see that price seems to have bottomed out and has began a new move upwards. Using your knowledge of Elliott Wave, you label this move up as Wave 1 and the retracement as Wave 2.

Elliott Wave Counts

In order to find a good entry point, you head back to the School of Pipsology to find out which of the three cardinal rules and guidelines you could apply. Here’s what you found out:

  • Rule Number 2: Wave 2 can NEVER go beyond the start of Wave 1
  • Waves 2 and 4 frequently bounce off Fibonacci retracement levels

So, using your superior Elliott Waving trading skillz, you decide to pop the Fibonacci tool to see if price is at a Fib level. Holy mama! Price is just chillin’ like ice cream fillin’ around the 50% level. Hmm, this could be the start of Wave 3, which is a very strong buy signal.

Elliott Wave Potential Entry

Since you’re a smart forex trader, you also take your stop into consideration.

Cardinal rule number 2 states that Wave 2 can never go beyond the start of Wave 1 so you set your stop below the former lows.

If price retraces more than 100% of Wave 1, then your wave count is wrong.

Let’s see what happens next…

Elliott Wave 3

Your Elliott Wave analysis paid off and you caught a huge upward move! You go to Vegas (or Macau), blow all your forex profits on roulette, and end right back where you started. Lucky for you we have another hypothetical scenario where you can earn imaginary money again…

Scenario 2:

This time, let’s use your knowledge on corrective waves patterns to grab those pips.

Elliott Wave Flat Formation

You begin counting the waves on a downtrend and you notice that the ABC corrective waves are moving sideways. Hmm, is this a flat formation in the works? This means that price may just begin a new impulse wave once Wave C ends.

Elliott Wave Flat Entry

Trusting your Elliott Wave skills, you go ahead and sell at market in hopes of catching a new impulse wave.

You place your stop just a couple of pips above the start of Wave 4 just in case your wave count is wrong.

Elliott Wave Flat Exit

Because we like happy endings, your trade idea works out and nets you a couple thousand pips on this day, which is not always the case.

You have also learned your lesson this time around so you skip Vegas and decide to use your profits to grow your forex trading capital instead.

Learn from your fellow forex traders and discuss Elliott Waves.


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● 规则二:第2浪永远不可能超过第1浪开启的起点

● 第2浪回撤的幅度最倾向于第1浪的50%或者61.8%



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Summary Of Elliott Wave Theory

Elliott Wave Theory Tips For Forex Trading

  • Elliott Waves are fractals. Each wave can be split into parts, each of which is a very similar copy of the whole. Mathematicians like to call this property “self-similarity”.
  • A trending market moves in a 5-3 wave pattern.
  • The first 5-wave pattern is called impulse wave.
  • One of the three impulse waves (1, 3, or 5) will always be extended. Wave 3 is usually the extended one.
  • The second 3-wave pattern is called corrective wave. Letters A, B, and C are used instead of numbers to track the correction.
  • Waves 1, 3 and 5, are made up of a smaller 5-wave impulse pattern while Waves 2 and 4 are made up of smaller 3-wave corrective pattern.
  • There are 21 types of corrective patterns but they are just made up of three very simple, easy-to-understand formations.
  • The three fundamental corrective wave patterns are zig-zags, flats, and triangles.

There are three cardinal rules in Elliott Wave Theory when labeling waves:

  • Rule Number 1: Wave 3 can NEVER be the shortest impulse wave
  • Rule Number 2: Wave 2 can NEVER go beyond the start of Wave 1
  • Rule Number 3: Wave 4 can NEVER cross in the same price area as Wave 1

If you look hard enough at a chart, you’ll see that the market really does move in waves.

Because the forex market never moves in text book perfect fashion, it will take many, many hours of practice analyzing waves before you start to get comfortable with Elliott waves. Stay diligent and never give up!


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● 艾略特波浪所具有的一种重要特性就是其具有分形结构。分形是这么一种结构,它能够细分成更小的部分,

● 艾略特认为,市场呈5-3浪形态波动。

● 最初的5浪称为推动浪。

● 上升浪(1、3、5浪)中,总有某一浪是延长浪,通常认为,第3浪为延长浪。

● 最后的3浪称为调整浪,通常用字母来表示。

● 第1、3、5浪都是由更小层级的5浪推动浪形态构成,而第2、4浪则由更小的3浪回调浪形态组成。

● 调整浪形态由简单到复杂,可多达21种,但它们仅仅由三种非常易于掌握的形态组成。

● 三种基本的调整浪形态为:锯齿形、平台形以及三角形。

● 艾略特波浪理论有3条重要规则

● 规则一:第3浪永远不是最短的浪

● 规则二:第2浪永远不可能超过第1浪开启的起点

● 规则三:第4浪永远不会进入第1浪的价格范围

● 如果你对图形进行足够的观察,你将看到市场确实处于波浪运动中。

● 由于市场永远不会出现教科书上所描述的运动态势,因此,我们在熟练掌握艾略特理论进行交易之前,需要做大量的实践和分析。要记住,保持勤勉的学习态度和永不放弃的精神!

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