Elliott suggests that there is a five wave pattern. This five wave pattern consists of impulse waves and corrective waves. This is an introduction to Elliott Wave Theory.

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Introduction to the Elliott Wave Theory
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The Elliott wave theory was discovered by Ralph Nelson Elliott.
According to the Elliott wave principle, market prices follow some recurrent cycles called
waves.
Waves are patterns of directional movement. Prices change their dynamics based on
crowd behaviour.
The Elliott wave principle is predictive in nature. It gives some insight about the probable
future direction of the market.
Elliott suggests that there is a five wave pattern. This five wave pattern consists of
impulse waves and corrective waves.
There are three impulse waves going alongside the major trend and two corrective
waves going against the major trend.
Elliott wave guidelines
• Wave 1, wave 3 and wave 5 determine the direction of the market
• Wave 2 and wave 4 are counter waves to wave 1, wave 3 and wave 5
• Wave two never retraces more than 100% of wave one.
• Wave 3 is usually the largest and most powerful
• Wave four does not overlap with the price territory of wave one.
Elliott wave development

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Wave development takes place in two phases: motive and corrective.
Motive waves have a five wave structure whereas corrective waves have a three wave
structure.
When motive waves and corrective waves are combined they form a complete wave
cycle of eight waves.
Motive waves are labelled 1-5
Corrective waves are labelled a-c
The sequence a, b, c corrects the sequence 1, 2, 3, 4, 5
At the end of the eight-wave cycle begins a second similar cycle of five upward waves
followed by three downward waves.

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The Wave Principle, then, reflects the fact that waves of any degree in any series always
subdivide and re-subdivide into waves of lesser degree and simultaneously are
components of waves of higher degree.
Each wave is comprised of smaller wave patterns. To make it easy to label these waves,
Elliott wave theory has categorised all waves by relative size from largest to smallest:
Grand Supercycle (multi-century)
Supercycle (multi-decades)
Cycle (decades)
Primary (years)
Intermediate (months)
Minor (weeks)
Minute (days)
Minuette (hours)
Subminuette (minutes)
A Grand Supercycle subdivides into a supercycle which subdivides into a cycle which
subdivides into Primary waves which subdivide into Intermediate waves which subdivide
into Minor waves which subdivide into Minute waves which subdivide into Minuette waves
which in turn subdivide into Subminuette waves.
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Elliott Wave Theory: Motive Waves
A motive wave is a price movement in the direction of the main trend. Motive waves
always subdivide into five smaller waves. Guidelines for identifying Motive waves
correctly • Wave two never retraces more than 100% of wave one • Wave four never
retraces more than 100% of wave three • Wave three is often the longest and most
powerful wave • Wave three always travels beyond the end of wave one Sub waves of
Motive waves are always denoted by numbers There are two types of motive waves:

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Impulse and Diagonal waves Impulse waves This is the most common type of motive
wave and they are easy to identify In this type of wave, wave four never enters wave
one`s price territory. The primary objective is to propel the market to move in a certain
direction, hence, wave 1, 3 and 5 are the motive waves and sub wave 3 is specifically an
impulse wave. Wave Extensions Most impulse waves contain Extensions An extension is
usually present in only one of the three impulse waves 1, 3 and 5. Extens