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Elliott Wave Principle in Security Analysis Patel and Modi

Fig. 2: Elliott Wave with its Inner Wave Structure.
Source: Steven, P. "Applying Elliott wave theory profitably." (2003).

As shown in Figure 2, inner wave marked as 1, so confident to generate new position After
3 and 5 are also impulsive wave of smaller long down movement, it might be complete in
degree. So, the wave 1, wave 3 and wave 5 are weeks or months.
parts of impulsive wave in upward direction. Wave 2: When R.N. Elliott discovered this
Either one of these three waves are extended principle at that time markets were not so
and containing inner five wave structure. aggressive, there was very simple rule or
Wave 2 and 4 are corrective waves of lower phenomena, “Buying at lower price and selling
degree and they are in reverse direction of at higher price”. The minority investors and
main trend noted as Wave A, B and C in traders actually apply this rule [2]. The wave 2
following figure. Bigger impulsive wave beginning after wave 1 when investors are in
consists of 3 impulsive and 2 corrective forms. mood of profit booking. This wave is
Within correctives wave, wave A and C are corrective in nature and against the main long-
impulsive of lowest degree. It also consists of term trend. It is not extended beyond the wave
5 inner waves. B is corrective of smallest 1. In normal case, it corrects up to the 61% or
degree and it followed 3 inner waves (name as 76.4% of wave 1. In some of the case, it
wave A, B and C) [2]. extends up to 99% of the wave 1. Because of
good macroeconomic factors and other
ELLIOTT WAVE PERSONALITY positive sentiments, there is a strong bull
Each wave either impulsive or corrective wave market. In this case, this wave is not correct
has its own signature or personalities which more than 50% of the wave 1 but it gives time
are defined as follows [7, 8]. Figure 1 shows wise correction means price is not going
five impulsive trend pattern and three down, but it is a consolidation mode which
corrective trend pattern. consumes the time before moving in line with
Wave 1: Wave have not any specific main trend line. There are various kinds of
characteristic and so have very less importance corrective wave like zig zag pattern, flat,
in calculations. The last trend considered is double three and most complex irregular
still continue. The crowd sentiments are patterns.
decidedly bearish and strongly bearish if it is Wave 3: This wave is very important because
happened just after a long recession trend. It it covers more price length in main trend than
progresses very silently and consistently and any other impulsive wave. The time taken by
try to make base as majority of investor are not this wave is also shorter than other impulsive

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