• Principles of Elliott Wave Theory
  • Motive and Corrective Waves
  • Wave Structure and Degrees
  • Fibonacci Ratios and Guidelines

The Wave Theory

  • Developed by Ralph Nelson Elliott in the late 1920s
  • He noticed repetitive patterns in the market which he attributed to the psychology of masses
  • He divided these large patterns in smaller patterns which he called “Waves”
  • Every transaction is both produced by meaningful information and produces meaningful information
  • The wave principle is not primarily a forecasting tool; it is a detailed description of how markets behave

Motive Wave

  • The motive wave is the first half a complete Elliott Wave cycle
  • It advances in the direction of the trend of one larger degree and it is subdivided into 5 smaller waves
  • Three of these waves, which are labeled 1, 3 and 5, are “impulse” or “actionary” waves
  • These impulse waves are separated by two “diagonal” or “corrective” waves, labeled 2 and 4

Motive Wave Rules

  • Wave 2 cannot retrace more than 100% of wave 1
  • Wave 3 can never be the shortest of waves 1, 3 and 5
  • Wave 4 can never overlap wave 1
  • These rules are unbreakable

Corrective Wave

  • The corrective wave is the second half a complete Elliott Wave cycle
  • Corrective waves move against the trend of one larger degree
  • The corrective wave is subdivided into 3 smaller waves denoted by the letters A, B and C

Basic Cycle Structure

  • Elliott Wave pattern = Motive phase + Corrective phase
  • A cycle is illustrated as a structure with a total of 8 waves
  • The market repeated this 5-3 structure again and again – Once the cycle ends, it begins again

Repetitive 5-3 Structure

  • Incorporated expanded waves make a more detailed general Elliot Wave structure
  • 5 advancing waves make up Wave I
  • 3 declining waves make up Wave II
  • In waves 1 and 2 of wave I, the general 5-3 Elliott structure forms
  • The market repeated this 5-3 structure again and again – once the cycle ends, it begins again
  • Each wave and cycle can be part of bigger 5-3 structure


Elliott Wave Degree

  • Degree is used to identify the position of a wave within the overall progress of the market
  • Elliott acknowledged 9 degrees of waves from the Grand Super cycle to the Subminuette
  • The precise degree is irrelevant to successful forecasting since the relative degree matters most
  • To know a major advance is due is more important  than its precise name
  • Later events always clarify the degree…


Fibonacci & Elliott

  • Elliott waves relate to one another according to Fibonacci ratios
  • Fibonacci ratios are useful to measure the target of a wave’s move
  • This can help traders determine good entry levels and profit targets
  • Wave 2 = 61.8% retracement of wave 1
  • Wave 3 = 161.8% or 261.8% extension of wave 1
  • Wave 4 = 38.2% retracement of wave 3

Wave Alteration

  • Wave 2 and wave 4 will alternate in shape or style
  • If wave 2 is sharp, wave 4 will be sideways
  • If wave 2 is sideways, wave 4 will be sharp
  • This guideline is useful for potentially projecting the end of wave 4

Wave Equality

  • In a 5 wave sequence, 2 of the motive sub-waves will tend toward equality
  • Wave 5 will approximately equal wave 1 in price
  • This guideline is useful for potentially projecting the end of wave 5

Momentum Divergence

  • When 5 breaks beyond the span of wave 3 momentum oscillators show divergence
  • As the price breaks to print a new high or low, oscillators fail to do the same and diverge
  • This guideline is useful for potentially projecting the beginning of a corrective wave

Depth of Corrective Wave

  • The market will often corrects to the territory of  wave 4 of lesser degree
  • The corrective wave will not always reach the bottom of the previous 4th wave
  • This is a good place for prices to find support or resistance before the trend continues

The Theory Limitations

  • Two features of this theory can create some confusion regarding wave-count:
  • Extensions of the impulse waves
  • Alternating types of corrective waves

Wave Extensions

  • Most of the time, impulse waves will display an “extension” to their normal pattern
  • One of the impulse waves in the motive phase will be an elongated impulse with multiple subdivisions
  • Extensions occur in wave 1, 3, or 5, however, wave 3 is the most common wave to extend
  • Subdivisions of the extended wave may look similar to the other 4 waves resulting in a wave-count of 9
  • Since the extended wave is originally an impulse, extensions can also occur within extensions

Types of Correction - Zigzag

  • The zigzag is a three-wave corrective structure labeled A-B-C with a sub-wave sequence of 5-3-5
  • Waves A and C are motive waves, while wave B is corrective
  • It is a sharp style of correction that usually shows up in wave 2 of the impulse wave

Types of Corrections - Flat

  • The flat is also three-wave corrective structure labeled A-B-C but with a sub-wave sequence of 3-3-5
  • Waves A and B are corrective waves, while wave C is a motive wave
  • It develops in a sideways direction and usually shows up in wave 4 of the impulse wave

Types of Corrections - Expanded Flat

  • Not all flat corrections look perfect like this
  • A more common type of flat is the expanded flat
  • Wave B ends above the start of wave A and wave C ends below the start of wave B

Types of Corrections - Triangle

  • The triangle is a five-wave corrective structure labeled A-B-C-D-E with a sub-wave sequence of 3-3-3-3-3
  • Its sub-waves form patterns of 3’s but sometimes may take the form of complex combinations
  • Triangles may take various forms and usually shows up in wave 4 of the impulse wave

The Story of Desmond Leong

Desmond is your average trader. He started off blowing up 7 (or more.. lost count) accounts amounting to more than 500k, tested over 30 Expert Advisors (EAs) to no success and spent over 10k on stupid useless courses.

Today he runs an award winning trading team and provides market analysis and webinars to some of the largest brokers such as IC Markets, XM, Axi, Tickmill, FXCM, VantageFX, easyMarkets and more.

He now has a simple goal: Creating an army of traders who trade profitably together and keep each other accountable. Guiding them with the most comprehensive no-BS free tutorials so that no one ever needs to go through the pain he went through himself to become a profitable trader.

My Trading Strategy


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