Elliot Wave Theory

Introduction: To Elliott Wave Theory

The Elliott Wave Theory was developed by Ralph Nelson Elliott during the 1930's (BTW, click here for our overview of the basics of technical analysis if you need that first). Elliott held the belief that although the crypto markets were thought to behave in a chaotic and random manner, that they actually trade in repetitive patterns. We will be looking at the history of the Elliott Wave Theory in this article and how it can be applied to trading.

Who was the creator of the EWT?

It was proposed by Ralph Nelson Elliott that financial price trends resulted from the predominant psychology of investors. He found that when there were swings that occurred in mass psychology that they showed up in the financial markets as "waves" or the same recurring fractal patterns.

EWT resembles the Dow theory somewhat in that both of the theories recognize stock prices as moving in waves. However, since Elliott also recognized that the markets have a "fractal" nature, he was able to break this down and also analyze it much greater detail. A fractal is a type of mathematical structure, that infinitely repeats itself on an ever-smaller scale. Ralph Nelson Elliott discovered that price patterns for the stock index were structured this way as well. He started looking at how the repeating patterns might be used as a type of predictive indicator for market moves in the future. This fractal in mathematics principle teaches us much about the emotions and sentiments of market rallies, today the Elliott wave theory is used commonly alongside more intricate tools. This is a strong card and provides us a way to always be learning.

Learning to trade market sentiments and finding your style of investment and trading with Elliott wave theory.  You will always learn more working and exchanging ideas with others. Join our private community of hundreds of members who are learning to trade and invest their ways to long term financial freedom! Thanks to Ralph Nelson Elliott, we now have this very unique way of recognizing patterns that can create profitable trends in the markets we are trading.

[Note: If you would like to learn more about Elliott wave theory and have lessons and how they apply to the bitcoin and crypto markets be sure to follow the rest of the Arcane Bear Academy Content]

youtube-video-thumbnail
Subscribe to Arcane Bear

Does the Elliott wave theory work?

Detailed stock market predictions were made by  Ralph Nelson Elliot, based on the reliable characteristics that he discovered as part of the wave pattern. Impulse waves, which travel in the same direction that the larger trend does, shows five waves every time in its pattern. On the other hand, corrective waves travel in the opposite direction that the min trend. Within each impulsive wave, on a smaller scale, five waves can be found again. We are essentially looking to technical analysis and fundamentals driving this momentum in the crypto or stock market arenas Wave theory is a flexible pattern that when used properly can yield great results for the investor and trader alike.

The nested wave pattern repeats itself at ever-smaller scales ad infinitum. Elliott Wave Theory looks at the financial markets' fractal structure during these time frames and makes conclusions about where we are in the emotional structure of a larger growthpattern. However, it was only decades later when fractals would be recognized by scientists and when they were mathematically demonstrated. Elliot wave theory makes use of determining whether the impulse or corrective wave is currently in play in longer and shorter time frames. Although with ost trading patterns, the larger the time frame the more reliable the data and the pattern breakouts.

Impulse waves VS Corrective Wave Patterns

. As we will get into a little more in detail as we look at what each of these tools for technical analysis of the markets can be used. Impulse waves are real drivers of change and the correctives sit on the backs of those peaks. Often retracing in markets up to 80% on a frequent basis, the understanding and proper recognition of the corrective wave allows us to find opportune times to enter market positions. Whereas the impulse or bull waves are always the markets we want to be selling. The traditional stock market vs cryptocurrency markets so seem to show variation in the Elliott wave principle and its ability to discover sentiment, simply that the crypto markets seem to express a larger, more exaggerated pull to the up and down. We can see why 24/7 a week markets with lowered liquidity and scarcity such as the crypto space create such powerful waves and patterns.

When it comes to the financial markets and technical patterns, there is the saying "what goes up, must come down." This refers to when a price movement is down or up it is always followed by the opposite movement. Price action is divided into corrections and trends. The main price direction is shown by trends, while corrections move against the direction of the trend.

Using some of these guidelines and cycle theory, we can now take our investments to the next level by empowering ourselves with the tools needed to recognize market cycle lows and highs more carefully.

 

How do you use Elliott Wave Theory for trading?

The following is an application of EWT:

There are five waves moving in the same direction that the main trend does, and then this is followed up by three waves that are in a correction (which is a total 5-3 move). The 5-3 moves become two subdivisions of the move of the next higher wave.

The 5-3 underlying wave pattern stays constant, Impulsive waves followed by corrective waves, although each wave's time span might vary and the depth and peaks of the highs and lows also vary.

Let's check out a chart that is comprised of eight waves (five net up with three net down) that are labeled 1-6 and A-C.

An impulse is formed by Waves 1-5, and a correction is formed by the A, B, and C waves. The five-wave impulse then forms wave 1 at the next-highest degree, and wave 2 is formed by the three-wave correction at the next-highest degree.

There are usually three distinct price movements in the corrective waves - two in the same direction as the main correction (A and C) and then one against it (B). In the above picture, Waves 2 and 4 are corrections.

In the picture, the waves A and C are moving in the trend's direction at one-larger of a degree. Therefore, they are impulsive and comprised of five waves. In contrast, Wave B is counter-trend and therefore is corrective and comprised of three waves.

An Elliott wave degree is formed by an impulse-wave formation, that is then followed up by a corrective wave that consists of trends and countertrends. Corrective waves can also find complexity here as well, depending on the trading pattern you are aiming at taking advantage of.

Five waves don't travel net upward always, and three waves don't travel net downward always. For example, whenever the larger-trend happens to be down, the five-wave sequence is as well.

elliot wave crypto

Nine degrees of Elliott Wave Theory:

-Sub-Minuette

-Minuette

-Minute

-Minor

-Intermediate

-Primary

-Cycle

-Supercycle

-Grand Supercycle

Since Elliott waves form a fractal, theoretically wave degrees continue to expand ever-smaller and ever-larger than those that are listed above.

To use this theory in regular trading, a trader may identify an impulse wave that is upward-trending, go long and then short the position or sell as the five-wave patterns completely and there is an imminent reversal.

What is the Elliott Wave Indicator and how do I use it?

This principle increased in popularity with technical analysts during the 1970s through the work done by Robert Prechter and A.J. Frost. In their now-famous book the Elliott Wave Principle: Key To Market Behavior, the 1980s bull market was predicted by the authors. Later Prechter issues a sell recommendation just days before the 1987 crash. The application of this tool become very common and can be found in every trading software for charting all of your wave counts. Often we are looking to trade waves 1 3 and 5. From there we can find entries or exits based on waves 2 and 4! These patterns are key to keep your eyes on as it can make a huge difference in your trading methodology. What Ralph Nelson Elliott laid down so many years ago is still a very strong principle in the way many traders and technical analysts look at the stock market and its relative asset prices and movements.

Is the Elliot Wave Theory Accurate?

Practitioners of the Elliott Wave structure and principles stress that just because the market is in the form of a fractal doesn't mean that it is easy to predict. A tree is recognized by scientists as a fractal, but that doesn't mean anybody can predict the path that each branch will take. When it comes to the practical application of the theory, there are devotees to the Elliott Wave Principle, and like all other analysis methods, it has its detractors as well. Finding the proper ration and use of any primary indicators. When we are looking for market trends we do not want to simply rely on an advance point or another. Elliot wave analysis is a great way to create a general sentiment and analysis at a glance for any larger time frame. One key weakness that practitioners always can blame on the charts being misread instead of the theory having weaknesses. Failing that, the amount of time that it takes for a wave to complete is always open to interpretation. That said, there are traders who are committed to the EWT and defend it with a passion.

 

Disclaimer for The Arcane Bear

If you require any more information or have any questions about our site’s disclaimer, please feel free to contact us at our help desk info@arcanebear.com

Disclaimers for www.arcanebear.com

All the information on this website is published in good faith and for general information purpose only. www.arcanebear.com does not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information you find on this website (www.arcanebear.club), is strictly at your own risk. www.arcanebear.club will not be liable for any losses and/or damages in connection with the use of our website.

The information provided a The Arcane Bear and accompanying material is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs.

The Arcane Bear does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. To the maximum extent permitted by law, The Arcane Bear disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.

From our website, you can visit other websites by following hyperlinks to such external sites. While we strive to provide only quality links to useful and ethical websites, we have no control over the content and nature of these sites. These links to other websites do not imply a recommendation for all the content found on these sites. Site owners and content may change without notice and may occur before we have the opportunity to remove a link which may have gone ‘bad’.

Please be also aware that when you leave our website, other sites may have different privacy policies and terms which are beyond our control. Please be sure to check the Privacy Policies of these sites as well as their “Terms of Service” before engaging in any business or uploading any information.

Consent
By using our website, you hereby consent to our disclaimer and agree to its terms.

Update

Should we update, amend or make any changes to this document, those changes will be prominently posted here.

Thank you, you have no become a part of the development of our new trading space together.

For this, we are extremely Grateful!

Tijo-

The Entire Bear Council

WEBSITE TERMS OF USE

The information on this site is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information on this website constitutes, or should be relied on as, a suggestion, offer, or other solicitation to engage in, or refrain from engaging in, any purchase, sale, or any other any investment-related activity with respect to any cryptocurrency or other transaction. 

Cryptocurrency investments are volatile and high risk in nature.

Don't invest more than what you can afford to lose.

We are not paid to do any reviews, but we do take positions in projects that we believe are promising.

Arcane Bear makes no representations, warranties, or assurances as to the accuracy, currency or completeness of the content contained in this website or any sites linked to or from this website.
Terms and Conditions

PLEASE READ THESE TERMS AND CONDITIONS ("TERMS") CAREFULLY BEFORE USING THE SERVICES DESCRIBED HEREIN.

BY UTILIZING THE WEBSITE LOCATED AT www.arcanebear.com ("WEBSITE") AND PRODUCTS THEREIN, YOU ACKNOWLEDGE THAT YOU HAVE READ THESE TERMS AND CONDITIONS AND THAT YOU AGREE TO BE BOUND BY THEM. IF YOU DO NOT AGREE TO ALL OF THE TERMS AND CONDITIONS OF THIS AGREEMENT, YOU ARE NOT AN AUTHORIZED USER OF THESE SERVICES AND YOU SHOULD NOT USE THIS WEBSITE OR ITS PRODUCTS. ARCANE BEAR RESERVES THE RIGHT TO CHANGE, MODIFY, ADD OR REMOVE PORTIONS OF THESE TERMS AT ANY TIME FOR ANY REASON. WE SUGGEST THAT YOU REVIEW THESE TERMS PERIODICALLY FOR CHANGES. SUCH CHANGES SHALL BE EFFECTIVE IMMEDIATELY UPON POSTING. YOU ACKNOWLEDGE THAT BY ACCESSING OUR WEBSITE AFTER WE HAVE POSTED CHANGES TO THESE TERMS, YOU ARE AGREEING TO THE MODIFIED TERMS. THIS DISCLAIMER OR ANY OTHER DOCUMENT, PRODUCED AND SIGNED BY ARCANE BEAR, DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO SELL ANY SHARES OR SECURITIES OR THE PRODUCTS OFFERED THERETO. NONE OF THE INFORMATION OR ANALYSES PRESENTED ARE INTENDED TO FORM THE BASIS FOR ANY INVESTMENT DECISION, AND NO SPECIFIC RECOMMENDATIONS ARE INTENDED, AND ARCANE BEAR SERVICES AND THE WEBSITE ARE NOT, DO NOT OFFER AND SHALL NOT BE CONSTRUED AS INVESTMENT OR FINANCIAL PRODUCTS. ACCORDINGLY, ARCANE BEAR DOES NOT PROVIDE INVESTMENT ADVICE OR COUNSEL OR SOLICITATION FOR INVESTMENT IN ANY CRYPTOCURRENCY AND/OR SECURITY AND SHALL NOT BE CONSTRUED IN THAT WAY. ARCANE BEAR EXPRESSLY DISCLAIMS ANY AND ALL RESPONSIBILITY FOR ANY DIRECT OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND WHATSOEVER ARISING DIRECTLY OR INDIRECTLY FROM: (I) RELIANCE ON ANY INFORMATION PRODUCED BY ARCANE BEAR, (II) ANY ERROR, OMISSION OR INACCURACY IN ANY SUCH INFORMATION OR (III) ANY ACTION RESULTING THEREFROM, (IV) USAGE OR ACQUISITION OF PRODUCTS, AVAILABLE THROUGH THE WEBSITE.

Intellectual Property

Arcane Bear retains all right, title and interest in all of our intellectual property, including inventions, discoveries, processes, marks, methods, compositions, formulae, techniques, information and data, whether or not patentable, copyrightable or protectable in trademark, and any trademarks, copyrights or patents based thereon. You may not use any of our intellectual property for any reason, except with our express, prior, written consent. 

All content included on the Website and associated products and services, such as, but not limited to, text, graphics, logos, and images is the property of Arcane Bear and protected by copyright, trademark and other laws that protect intellectual property and proprietary rights. You agree to observe and abide by all copyright and other proprietary notices, legends or other restrictions contained in any such content and will not make any changes thereto.

Access to the Website

The Arcane Bear Website is provided without warranty of any kind, either express or implied. We do not represent that the Website will be available 100% of the time to meet your needs. In case of interruptions we take all reasonable actions to provide you with access to the Website as soon as possible, but there are no guarantees that access will not be interrupted, or that there will be no delays, failures, errors, omissions or loss of transmitted information. We may suspend use of the Website at any time for maintenance.