ππ#LECTURE ONE#ππ
ππGuidelines for Applying Elliott Wave Theoryππ
A guideline is not a hard and fast rule that can't be broken. It is a tendency - something that happens so often that it can almost qualify as a rule, except for the times it doesn't work as expected.
The guidelines described below are useful ways of applying Elliott Wave analysis that have shown their validity over time. But as they are not rules, they may not work out every time.
ππGuidelines for Applying Elliott Wave Theoryππ
A guideline is not a hard and fast rule that can't be broken. It is a tendency - something that happens so often that it can almost qualify as a rule, except for the times it doesn't work as expected.
The guidelines described below are useful ways of applying Elliott Wave analysis that have shown their validity over time. But as they are not rules, they may not work out every time.
Guideline 1
The Guideline of Equality says that two of the motive sub-waves in a five wave sequence will tend toward equality, and is generally true of the non-extended waves.
This means that when Wave 3 of an impulse wave is the extended wave, Wave 5 will approximately equal Wave 1 in price. This is useful for potentially projecting the end of Wave 5 in an impulse if you recognize Wave 3 as an extended wave.
The Guideline of Equality says that two of the motive sub-waves in a five wave sequence will tend toward equality, and is generally true of the non-extended waves.
This means that when Wave 3 of an impulse wave is the extended wave, Wave 5 will approximately equal Wave 1 in price. This is useful for potentially projecting the end of Wave 5 in an impulse if you recognize Wave 3 as an extended wave.
Guideline 2
The Guideline of Alternation within an Impulse says that the forms for Wave 2 and Wave 4 will alternate. If Wave 2 is a sharp style of correction, Wave 4 will be a sideways style of correction. If Wave 2 is sideways, Wave 4 will be sharp.
This is useful for anticipating the end of a Wave 4 correction within a suspected impulse.
The Guideline of Alternation within an Impulse says that the forms for Wave 2 and Wave 4 will alternate. If Wave 2 is a sharp style of correction, Wave 4 will be a sideways style of correction. If Wave 2 is sideways, Wave 4 will be sharp.
This is useful for anticipating the end of a Wave 4 correction within a suspected impulse.
Guideline 3
The Guideline of Alternation within a Correction says that the forms for Wave A and Wave B will alternate within a 3-wave correction. If Wave A is a flat type of correction, Wave B may be a zigzag type of correction and vice versa.
It also states that if the correction begins with a more simple wave for Wave A, expect the following Waves B and C to be more complex.
The Guideline of Alternation within a Correction says that the forms for Wave A and Wave B will alternate within a 3-wave correction. If Wave A is a flat type of correction, Wave B may be a zigzag type of correction and vice versa.
It also states that if the correction begins with a more simple wave for Wave A, expect the following Waves B and C to be more complex.
Guideline 4
The Guideline of Depth of Corrective Waves says that when the market goes into a correction, it often will correct to the territory of the previous Wave 4 of lesser degree.
This does not necessarily mean that it will reach the bottom of the previous 4th wave, but rather that we should expect it will reach the span of the previous Wave 4 of lesser degree.
This is often a good place for a market to find support (or resistance) before the trend moves on.
The Guideline of Depth of Corrective Waves says that when the market goes into a correction, it often will correct to the territory of the previous Wave 4 of lesser degree.
This does not necessarily mean that it will reach the bottom of the previous 4th wave, but rather that we should expect it will reach the span of the previous Wave 4 of lesser degree.
This is often a good place for a market to find support (or resistance) before the trend moves on.
Guideline 5
The Guideline of Channeling is really a technique to project the potential end of waves within impulses.
Although channeling can be used for corrective waves, it really boils down to the application of trend lines and doesn't have any hard tendencies for corrective applications.
As for impulse waves, Elliott noticed that channel lines often mark their boundaries with sometimes dramatic precision.
There are three ways that channeling can be used for projecting the end of waves, but they all use the same technique.
They all require three points - beginning and ending of waves - to create their channels.
This technique can be used for projecting the end of Wave 3, the end of Wave 4, and the end of Wave 5.
ππ Projecting the end of Wave 3: Draw a trend line from the beginning of Wave 1 to the end of Wave 2. Project a parallel line off the end of Wave 1. There is a potential for Wave 3 to end when it reaches the projected trend line.
ππ Projecting the end of Wave 4: Draw a trend line from the beginning of Wave 2 to the end of Wave 3. Project a parallel line off the end of Wave 2. There is a potential for the Wave 4 correction to end when it reaches the projected trend line.
ππ Projecting the end of Wave 5: Draw a trend line from the beginning of Wave 3 to the end of Wave 4. Project a parallel line off the end of Wave 3. There is a potential for Wave 5 to end when it reaches the projected trend line.
The Guideline of Channeling is really a technique to project the potential end of waves within impulses.
Although channeling can be used for corrective waves, it really boils down to the application of trend lines and doesn't have any hard tendencies for corrective applications.
As for impulse waves, Elliott noticed that channel lines often mark their boundaries with sometimes dramatic precision.
There are three ways that channeling can be used for projecting the end of waves, but they all use the same technique.
They all require three points - beginning and ending of waves - to create their channels.
This technique can be used for projecting the end of Wave 3, the end of Wave 4, and the end of Wave 5.
ππ Projecting the end of Wave 3: Draw a trend line from the beginning of Wave 1 to the end of Wave 2. Project a parallel line off the end of Wave 1. There is a potential for Wave 3 to end when it reaches the projected trend line.
ππ Projecting the end of Wave 4: Draw a trend line from the beginning of Wave 2 to the end of Wave 3. Project a parallel line off the end of Wave 2. There is a potential for the Wave 4 correction to end when it reaches the projected trend line.
ππ Projecting the end of Wave 5: Draw a trend line from the beginning of Wave 3 to the end of Wave 4. Project a parallel line off the end of Wave 3. There is a potential for Wave 5 to end when it reaches the projected trend line.
βοΈβοΈ The Personality of Elliott Waves
Wave βpersonalityβ is the reflection of mass psychology acting in the market - the emotions that flow from optimism to pessimism, creating the structures we see in the market.
The personality of each wave type is the same whether it is a higher-degree wave or a lesser one. This section will expand on the characteristics of some of the waves. Please keep in mind the eight-wave cycle when going over this section.
Wave βpersonalityβ is the reflection of mass psychology acting in the market - the emotions that flow from optimism to pessimism, creating the structures we see in the market.
The personality of each wave type is the same whether it is a higher-degree wave or a lesser one. This section will expand on the characteristics of some of the waves. Please keep in mind the eight-wave cycle when going over this section.