WORKING WITH A WAVE
PATTERN
Returning
to Elliott's original work, one of his most important statements is, "A
cyclical pattern or measurement of mass psychology is 5 waves upward and 3 waves
downward, totaling] 8 waves. These patterns have forecasting value—when 5 waves
upward have been completed, 3 waves down will follow and vice versa" (p. 112).
This appears to be the only time that Elliott gave a definitive rule with
forecasting value, and many times the market behaves exactly as this pattern
dictates.
In this chapter, we will analyze
this great observation of Elliott, combining it with additional rules to give
definitive entry and exit points. Consistent with the Elliott concept, the end
of the fifth wave is considered to be a safe point to invest. The rare case of
an "extension in the 5th wave" will be explained later.
The five waves can be seen in
charts of any time period, whether intraday, daily, weekly, or monthly. The
greatest problem for the investor is waiting for the end of the fifth wave. To
identify the five-wave swing, we must return to Elliott who said:
• Under
normal circumstances, wave 5 appears similar to wave 1.
• Most of
the time, wave 3 is the longest wave.
• Wave 4
should not touch the top of wave 1 in an uptrend.
(FOREX 101)
Forex Art Of Fibonacci (Forex 101)
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Forex Art Of Fibonacci (Forex 102)
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