Traders Toolbox: Elliott Wave Theory

MarketClub is known for our “Trade Triangle” technology. However, if you have used other technical analysis indicators previously, you can use a combination of the studies and other techniques in conjunction with the “Trade Triangles” to further confirm trends.

Elliott Wave Theory categorizes price movement in terms of predictable waves. Beginning in the late 1920s, R.N. Elliott developed his own concept of price waves and their predictive qualities. In Elliott theory, waves moving with the trend are called impulse waves, while waves moving against it are called corrective waves.

Impulse saves are broken down into five primary price movements, while correction waves are broken down into three. An impulse wave is always followed by a correction wave, so any complete wave cycle will contain eight distinct price movements. Breaking down the primary waves of the impulse/correction wave cycle into subwaves produces a wave count of 34 (21 from the impulse wave plus 13 from teh correction wave), producting more Fibonacci numbers.

Elliott analysis can be applied to time frames as short as 15 minutes or as long as decades, with smaller waves functioning as subwaves of larger waves, which are in turn subwaves of still larger formations. By analyzing price charts and maintaining wave counts, you can determine price objectives and reversal points.

A key element of Elliott analysis is defining the wave context you are in: Are you presently in an impulse wave uptrend, or is it just eh correction wave of a larger downtrend? The larger the time frame you analyze, the larger the trend or wave you find yourself in. Because waves are almost never straightforward, but are instead composed of numerous subwaves and minor aberrations, clearly defining waves (especially correction waves) is as much an art as any other kind of chart analysis.

Fibonacci ratios play a conspicuous role in establishing price objectives in Elliott theory. In an impulse wave, the three principal waves moving in the direction of a trend are separated by two smaller waves moving against the trend. Elliotticians often forecast the tops or bottoms of the upcoming waves by multiplying previous waves by a Fibonacci ratio. For example, to estimate a price objective for wave III, multiply wave I by the Fibonacci ratio of 1.618 and add it to the bottom of wave II for a price target. Fibonacci numbers are also evident in the time it takes for price patterns to develop and cycles to complete.

"Saturday Seminars" - Cycles & Oscillators

You will leave Walter's workshop with a working knowledge of how to combine cycles and oscillators to identify cycle tops and bottoms as they occur plus five specific oscillator/cycle combinations that you can immediately apply to the markets - weekly, daily and intra-day. The workshop is presented in two sections.

CYCLES - In the first part of his workshop, Walt will explain the four dominant cycles and discuss techniques to find these cycles in the market. The development and use of timing bands and Fibonacci ratios will be examined to determine the timing of the cycles and specific techniques will be illustrated for determining the future price levels of cycle tops and bottoms.

OSCILLATORS - Several techniques will be presented to improve the performance of oscillators, often turning a mediocre one into a powerhouse. Walter will explain how to combine oscillators with cycles to identify tops and bottoms as they are occurring, and will show specific oscillator cycle combinations to identify cycle tops and bottoms mechanically.

Walter BressertWalter Bressert has been using market cycles to trade stocks and commodities since the 1970s when his HAL Commodity Cycles was one of the most widely known advisory services focusing on cycles.


Saturday Seminars are just a taste of the power of INO TV. The web's only online video and audio library for trading education. So watch four videos in our free version of INO TV click here.