Elliot Wave Theory proposes that financial market prices move in recurring patterns or "waves" due to shifts in crowd psychology. According to the theory, waves move in five-wave patterns in the direction of the main trend, followed by three waves moving counter to the main trend. This 5-3 pattern then repeats at higher time scales. The theory provides key rules for identifying waves, such as wave 2 never retracing more than 100% of wave 1, and wave 3 typically being the longest of waves 1, 3, and 5. Analyzing price movements according to Elliot Wave patterns can provide insight into crowd behavior and market trends.

1. Module - 26
Elliot Wave Basics
CMT LEVEL - I

2. What is Elliot Wave?
• Ralph Nelson Elliott developed the Elliott Wave Theory in the
1930s.
• Crowd behaviour trends & reverses in recognizable pattern
called as waves .
• Elliot Wave are advance version of trend series.
• Elliott proposed that trends in financial prices resulted from
investors' predominant psychology.
• He found that swings in mass psychology always showed up in
the same recurring fractal patterns, or "waves," in financial
markets.

3. Wave Patterns
•An impulse wave, which net travels in the same
direction as the larger trend, always shows five waves
in its pattern.
• A corrective wave, on the other hand, net travels in
the opposite direction of the main trend. (Profit
Booking , Distribution)

4. Theory Interpretation
•Five waves move in the direction of the main trend,
followed by three waves in a correction (totaling a 5-3
move).
•This 5-3 move then becomes two subdivisions of the
next higher wave move.
•The underlying 5-3 pattern remains constant, though
the time span of each wave may vary.

5. Theory Interpretation

6. Theory Interpretation

7. Theory Interpretation

8. Key Rules for Elliot Waves
•Wave 2 never retrace more than 100% of wave 1.
•The end of wave 4 never overlap the orthodox end of
wave 1.
•Of waves 1, 3 and 5, wave 3 never be the shortest
wave. Usually it’s the longest one.

9. Key Rules for Elliot Waves
• A-B-C wave never be go below/above wave 4thwave
bottom/top otherwise A-B-C wave consider as 1st
wave (Primary wave) of the new trend.
• Always identify the Elliot wave from the absolute
bottom & top. It may be 52 week , 30 days , 5 days
high/low.
• All corrective wave have low volume as compare to
all impulse wave will be consider as good symptom of
price movement.