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Understanding these monumental trends will help you position yourself for long-term profit and protection. Stocks, commodities and gold: The Wave Principle is your guide to the movements of any financial market.
Few pleasures can match the exhilaration you'll feel when a Wave Principle forecast has you in the market when it moves up, or takes you out just before it moves down. The book is essential reading for you to receive the most from what the Theorist says every month -- in fact, all of EWI's publications continually reference this book. An acclaimed guide on Elliot Wave Theory which has come to be regarded as the definitive work on the subject.
All the relative concepts are thoroughly covered: Fibonacci numbers, wave analysis time sequence, cyclic analysis, etc. An update to the Elliot Wave Principle that corrects a fundamental error The Elliot Wave Principle has been widely adopted as a tool for traders analyzing market cycles, but Ian Copsey has unearthed a fundamental error in the way it defines the structural development of price behavior. Elliott's Impulsive Wave Structure explains what's wrong with the Principle, outlining a modification that allows for more accurate trading predictions.
Revealing the methodology that led to this discovery, the common ratios that link different parts of the wave structure, and providing a wealth of practical examples to explain his findings, Copsey shows how waves really develop, dispelling the misconceptions that have been practiced by Elliotticians for years. Supporting his methods by consistently ensuring that waves are related by common ratios, Copsey helps the reader apply the revised version of the Principle with greater understanding and accuracy.
Reveals a fundamental error in the popular Elliot Wave Principle Outlines a tried and tested modification that fixes this mistake and allows for more accurate analysis Offers essential information on applying the new model to the markets With far-reaching implications for traders everywhere, Harmonic Elliott Wave is a must-read for anyone who puts their faith in the Elliot Wave Principle.
Co-authored by two of Elliott Wave International's most trusted analysts -- Wayne Gorman and Jeffrey Kennedy -- their trading insights offer a perfect blend of traditional textbook and real-world application. Join Kennedy and Gorman as they provide step-by-step instruction in how to trade with Elliott. They include scores of real market charts that depict the Elliott wave patterns, which will help you measure the strength of trends, forecast market turning points, plus identify trading opportunities.
What's more, this illustrated guide also explains how to use supporting technical indicators that can build confidence in your Elliott wave analysis. Gorman and Kennedy know that "simple" does not mean "easy.
Whether your trading style is conservative or aggressive, their charts and techniques can help identify high-confidence opportunities.
Use this book to recognize those wave patterns, and anticipate market moves that most traders never see coming. By understanding the Wave Principle, you can anticipate large and small shifts in the psychology driving any investment market and help yourself minimize the emotions that drive your own investment decisions.
Within an impulse, the fourth wave frequently sports a flat, while the second wave rarely does. What might be called a "double flat" does occur. However, Elliott categorized such a formation as a "double three," a term we discuss later in this chapter.
The word "flat" is used as a catch-all name for any A-B-C correction that subdivides In Elliott literature, however, three types of corrections have been named by differences in their overall shape.
In a regular flat correction, wave B terminates about at the level of the beginning of wave A, and wave C terminates a slight bit past the end of wave A, as we have shown in Figures through Far more common, however, is the variety we call an expanded flat, which contains a price extreme beyond that of the preceding impulse wave. Elliott called this variation an "irregular" flat, although the word is inappropriate as they are actually far more common than "regular" flats.
In expanded flats, wave B of the pattern terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A, as shown for bull markets in Figures and and bear markets in Figures and The formation in the DJIA from August to November was an expanded flat correction in a bear market, or an "inverted expanded flat" see Figure In a rare variation on the pattern, which we call a running flat, wave B terminates well beyond the beginning of wave A as in an expanded flat, but wave C fails to travel its full distance, falling short of the level at which wave A ended, as in Figures through Apparently in this case, the forces in the direction of the larger trend are so powerful that the pattern is skewed in that direction.
The result is akin to the truncation of an impulse. If the supposed B wave, for instance, breaks down into five waves rather than three, it is more likely the first wave up of the impulse of next higher degree.
The power of adjacent impulse waves is important in recognizing running corrections, which tend to occur only in strong and fast markets. We must issue a warning, however. There are hardly any examples of this type of correction in the price record. A running triangle , in contrast, is much more common see next section. A triangle appears to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility.
The triangle pattern contains five overlapping waves that subdivide and are labeled A-B-C-D-E. A triangle is delineated by connecting the termination points of waves A and C, and B and D.
Wave E can undershoot or overshoot the A-C line, and in fact, our experience tells us that it happens more often than not. There are three varieties of triangles: contracting, barrier and expanding, as illustrated in Figure Elliott contended that the horizontal line of a barrier triangle could occur on either side of the triangle, but such is not the case; it always occurs on the side that the next wave will exceed. Figure depicts contracting and barrier triangles as taking place entirely within the area of preceding price action, which may be termed a regular r triangle.
Yet, it is extremely common for wave B of a contracting triangle to exceed the start of wave A in what may be termed a running triangle, as shown in Figure There are several real life examples of triangles in the charts in this book see Figures , , , , and As you will notice, most of the subwaves in a triangle are zigzags, but sometimes one of the subwaves usually wave C is more complex than the others and can take the shape of a multiple zigzag.
In rare cases, one of the sub-waves usually wave E is itself a triangle, so that the entire pattern protracts into nine waves. Thus, triangles, like zigzags, occasionally display a development that is analogous to an extension. One example occurred in silver from through see Figure A triangle always occurs in a position prior to the final actionary wave in the pattern of one larger degree, i.
A triangle may also occur as the final actionary pattern in a corrective combination, as discussed in the next section, although even then it usually precedes the final actionary wave in the pattern of one larger degree than the corrective combination. Although upon extremely rare occasions a second wave in an impulse appears to take the form of a triangle, it is usually due to the fact that a triangle is part of the correction, which is in fact a double three for example, see Figure In the stock market, when a triangle occurs in the fourth wave position, wave five is sometimes swift and travels approximately the distance of the widest part of the triangle.
Elliott used the word "thrust" in referring to this swift, short motive wave following a triangle. The thrust is usually an impulse but can be an ending diagonal. In powerful markets, there is no thrust, but instead a prolonged fifth wave. So if a fifth wave following a triangle pushes past a normal thrust movement, it is signaling a likely protracted wave.
Post-triangle advancing impulses in commodities at degrees above Intermediate are usually the longest wave in the sequence, as explained in Chapter 6. Many analysts are fooled into labeling a completed triangle way too early. Triangles take time and go sideways. If you examine Figure closely, you will see that one could have jumped the gun in the middle of wave b, pronouncing the end of five contracting waves.
But the boundary lines of triangles almost never collapse so quickly. Subwave C is typically a complex wave, though wave B or D can fulfill that role. Give triangles time to develop. On the basis of our experience with triangles, as the examples in Figures and later in and illustrate, we propose that often the time at which the boundary lines of a contracting triangle reach an apex coincides with a turning point in the market.
Perhaps the frequency of this occurrence would justify its inclusion among the guidelines associated with the Wave Principle. Elliott called a sideways combination of two corrective patterns a "double three" and three patterns a "triple three. As with double and triple zigzags, the simple corrective pattern components are labeled W, Y and Z.
Each reactionary wave, labeled X, can take the shape of any corrective pattern but is most commonly a zigzag. As with multiple zigzags, three patterns appear to be the limit, and even those are rare compared to the more common double three.
Combinations of threes were labeled differently by Elliott at different times, although the illustrative pattern always took the shape of two or three juxtaposed flats, as shown in Figures and However, the component patterns more commonly alternate in form. For example, a flat followed by a triangle is a more typical type of double three which we now know as of ; see Appendix , as illustrated in Figure A flat followed by a zigzag is another example, as shown in Figure Naturally, since the figures in this section depict corrections in bull markets, they need only be inverted to observe them as upward corrections in bear markets.
For the most part, a combination is horizontal in character. Elliott indicated that the entire formation could slant against the larger trend, although we have never found this to be the case.
One reason is that there never appears to be more than one zigzag in a combination. Neither is there more than one triangle. Recall that triangles occurring alone precede the final movement of a larger trend.
Combinations appear to recognize this character and sport triangles only as the final wave in a double or triple three. But double and triple threes are different from double and triple zigzags not only in their angle but in their goal.
In a double or triple zigzag, the first zigzag is rarely large enough to constitute an adequate price correction of the preceding wave. The doubling or tripling of the initial form is usually necessary to create an adequately sized price retracement.
In a combination, however, the first simple pattern often constitutes an adequate price correction. The doubling or tripling appears to occur mainly to extend the duration of the corrective process after price targets have been substantially met.
Sometimes additional time is needed to reach a channel line or achieve a stronger kinship with the other correction in an impulse. As the consolidation continues, the attendant psychology and fundamentals extend their trends accordingly. Notice that while an impulse wave has a total count of 5, with extensions leading to 9 or 13 waves, and so on, a corrective wave has a count of 3, with combinations leading to 7 or 11 waves, and so on.
The triangle appears to be an exception, although it can be counted as one would a triple three, totaling 11 waves. Thus, if an internal count is unclear, you can sometimes reach a reasonable conclusion merely by counting waves.
A count of 9, 13 or 17 with few overlaps, for instance, is likely motive, while a count of 7, 11 or 15 with numerous overlaps is likely corrective. The main exceptions are diagonals of both types, which are hybrids of motive and corrective forces.
In such cases, the end of the pattern is called the "orthodox" top or bottom in order to differentiate it from the actual price high or low that occurs intra-pattern or after the end of the pattern. For example, in Figure , the end of wave 5 is the orthodox top despite the fact that wave 3 registered a higher price. In Figure , the end of wave 5 is the orthodox bottom.
In Figures and , the starting point of wave A is the orthodox top of the preceding bull market despite the higher high of wave B. In Figures and , the start of wave A is the orthodox bottom.
In Figure , the end of wave Y is the orthodox bottom of the bear market even though the price low occurs at the end of wave W. This concept is important primarily because a successful analysis always depends upon a proper labeling of the patterns.
Assuming falsely that a particular price extreme is the correct starting point for wave labeling can throw analysis off for some time, while being aware of the requirements of wave form will keep you on track.
Further, when applying the forecasting concepts that will be introduced in Chapter 4, the length and duration of a wave are typically determined by measuring from and projecting orthodox ending points. Earlier in this chapter, we described the two functions waves may perform action and reaction , as well as the two modes of structural development motive and corrective that they undergo. Now that we have reviewed all types of waves, we can summarize their labels as follows:. As stated earlier, all reactionary waves develop in corrective mode, and most actionary waves develop in motive mode.
The preceding sections have described which actionary waves develop in corrective mode. They are:. Because the waves listed above are actionary in relative direction yet develop in corrective mode, we term them "actionary corrective" waves. Though action in five waves is followed by reaction in three waves at all degrees of trend regardless of direction , progress begins with an actionary impulse, which by convention is graphed in the upward direction.
Since all such graphs depict ratios, they could be depicted in the downward direction. Instead of dollars per share, for instance, one could plot shares per dollar. Progress is carried out by the development of impulse waves of ever larger degree.
Motive waves downward are merely parts of corrections and therefore are not synonymous with progress. Similarly, corrective waves upward are still corrective and thus ultimately do not achieve progress. Therefore, three additional terms are required to denote the purpose of a wave, to differentiate conveniently among waves that result in progress and those that do not. Any motive wave upward that is not within a corrective wave of any larger degree will be termed a progressive wave.
It must be labeled 1, 3 or 5. Any declining wave, regardless of mode, will be termed a regressive wave. Finally, an upward wave, regardless of mode, that occurs within a corrective wave of any larger degree will be termed a proregressive wave. Both regressive and proregressive waves are part or all of corrections. Only a progressive wave is independent of countertrend forces.
The reader may recognize that the commonly used term "bull market" would apply to a progressive wave, the term "bear market" would apply to a regressive wave, and the term "bear market rally" would apply to a proregressive wave. However, conventional definitions of terms such as "bull market," "bear market," "primary," "intermediate," "minor," "rally," "pullback" and "correction" attempt to include a quantitative element and are thus rendered useless because they are arbitrary.
By this definition, a decline of Such terms are of questionable value. Although a whole list of quantitative terms could be developed cub, mama bear, papa bear and grizzly, for instance , they cannot improve upon the simple use of a percentage. In contrast, Elliott wave terms are properly definitive because they are qualitative, i. Thus, there are differing degrees of progressive, regressive and proregressive waves under the Wave Principle.
A Supercycle B wave in a Grand Supercycle correction would be of sufficient amplitude and duration that it would be popularly identified as a "bull market. There are two classes of waves, which differ in fundamental importance. Waves denoted by numbers we term cardinal waves because they compose the essential wave form, the five-wave impulse, as shown in Figure The market can always be identified as being in a cardinal wave at the largest degree.
Waves denoted by letters we term consonant or subcardinal waves because they serve only as components of cardinal waves 2 and 4 and may not serve in any other capacity.
A motive wave is composed, at one lesser degree, of cardinal waves, and a corrective wave is composed, at one lesser degree, of consonant waves. Our selection of these terms is due to their excellent double meanings. There is little practical use for these terms, which is why this explanation has been relegated to the end of the chapter. However, they are useful in philosophical and theoretic discussions and so are presented to anchor the terminology.
In The Wave Principle and elsewhere, Elliott discussed what he called an "irregular top," an idea he developed with a great deal of specificity. He said that if an extended fifth wave terminates a fifth wave of one higher degree, the ensuing bear market will either begin with or be an expanded flat in which wave A is extremely we would say impossibly small relative to the size of wave C see Figure Wave B to a new high is the irregular top, "irregular" because it occurs after the end of the fifth wave.
Elliott contended further that occurrences of irregular tops alternate with those of regular tops. His formulation is inaccurate, however, and complicates the description of phenomena that we describe accurately in the discussion of the behavior following fifth wave extensions and under "Depth of Corrective Waves" in Chapter 2. The question is, how did Elliott end up with two extra waves that he had to explain away? The answer is that he was powerfully predisposed to marking a fifth wave extension when in fact the third wave had extended.
Two impressive Primary degree fifth wave extensions occurred in the s and s, engendering that predisposition. In order to turn an extended third into an extended fifth, Elliott invented an A-B-C correction called an "irregular type 2. He often asserted this labeling in the wave 2 position.
These labels then left him with two extra waves at the peak. Thus, these two erroneous concepts were born of the same tendency. In fact, one requires the other. As you can see by the count illustrated in Figure , the a-b-c "irregular type 2" in the wave 2 position necessitates the "irregular top" labeling at the peak. In fact, there is nothing irregular about the wave structure except its false labeling! Elliott also contended that every fifth wave extension is "doubly retraced," i. Such movement happens naturally due to the guideline that corrections usually bottom in the area of the previous fourth wave see Chapter 2 ; the "second retracement" is the next impulse wave.
The term might apply reasonably well to waves A and B of an expanded flat following an extension, as per the discussion in Chapter 2 under "Behavior Following Fifth Wave Extensions.
In Nature's Law , Elliott referred to a shape called a "half moon. This shape is found more often when declining prices are plotted on semilog scale and when advancing prices in a multi-year trend are plotted on arithmetic scale. The fact is that Elliott invented this pattern during a period in which he was trying to force his Principle into the year triangle concept, which no interpreter today accepts as valid under the rules of the Wave Principle.
Indeed, it is clear that such a pattern, if it existed, would have the effect of invalidating the Wave Principle. The authors have never seen an "A-B base," and in fact it cannot exist. As far as we know, this chapter lists all wave formations that can occur in the price movement of the broad stock market averages. Under the Wave Principle, no other formations than those listed here will occur.
The authors can find no examples of waves above Minor degree that we cannot count satisfactorily by the Elliott method. The hourly readings are a nearly perfectly matched filter for detailing waves of Subminuette degree. Elliott waves of much smaller degree than Subminuette are revealed by computer generated charts of minute-by-minute transactions.
Even the few data points transactions per unit of time at this low a degree are often enough to reflect the Wave Principle accurately by recording the rapid shifts in psychology occurring in the "pits" and on the exchange floor.
All rules and guidelines of the Wave Principle fundamentally apply to actual market mood, not its recording per se or lack thereof. Its clear manifestation requires free market pricing. When prices are fixed by government edict, such as those for gold and silver for half of the twentieth century, waves restricted by the edict are not allowed to register.
When the available price record differs from what might have existed in a free market, rules and guidelines must be considered in that light. In the long run, of course, markets always win out over edicts, and edict enforcement is only possible if the mood of the market allows it. All rules and guidelines presented in this book presume that your price record is accurate.
Now that we have presented the rules and rudiments of wave formation, we can move on to some of the guidelines for successful analysis using the Wave Principle. The guidelines presented throughout this chapter are discussed and illustrated in the context of a bull market.
Except where specifically excluded, they apply equally in bear markets, in which context the illustrations and implications would be inverted. The guideline of alternation is very broad in its application and warns the analyst always to expect a difference in the next expression of a similar wave.
Hamilton Bolton said,. Although alternation does not say precisely what is going to happen, it gives valuable notice of what not to expect and is therefore useful to keep in mind when analyzing wave formations and assessing future probabilities. It primarily instructs the analyst not to assume, as most people tend to do, that because the last market cycle behaved in a certain manner, this one is sure to be the same. As "contrarians" never cease to point out, the day that most investors "catch on" to an apparent habit of the market is the day it will change to one completely different.
However, Elliott went further in stating that, in fact, alternation was virtually a law of markets. If wave two of an impulse is a sharp correction, expect wave four to be a sideways correction, and vice versa. Figure shows the most characteristic breakdowns of an impulse wave, either up or down, as suggested by the guideline of alternation. Sharp corrections never include a new price extreme, i. They are almost always zigzags single, double or triple ; occasionally they are double threes that begin with a zigzag.
Sideways corrections include flats, triangles, and double and triple corrections. They usually include a new price extreme, i.
In rare cases, a regular triangle one that does not include a new price extreme in the fourth wave position will take the place of a sharp correction and alternate with another type of sideways pattern in the second wave position. The idea of alternation within an impulse can be summarized by saying that one of the two corrective processes will contain a move back to or beyond the end of the preceding impulse, and the other will not. A diagonal does not display alternation between subwaves 2 and 4.
Typically both corrections are zigzags. An extension is an expression of alternation, as the motive waves alternate their lengths. Typically the first is short, the third is extended, and the fifth is short again. An extension, which normally occurs as wave 3, sometimes occurs as wave 1 or 5, another manifestation of alternation.
If a correction begins with a flat a-b-c construction for wave A, expect a zigzag a-b-c formation for wave B, and vice versa see Figures and Quite often, when a large correction begins with a simple a-b-c zigzag for wave A, wave B will stretch out into a more intricately subdivided a-b-c zigzag to achieve a type of alternation, as in Figure Sometimes wave C will be yet more complex, as in Figure The reverse order of complexity is somewhat less common.
An example of its occurrence can be found in wave 4 in Figure No market approach other than the Wave Principle gives a satisfactory answer to the question, "How far down can a bear market be expected to go? Our analysis of the period from to uses the chart of stock prices adjusted to constant dollars developed by Gertrude Shirk and presented in the January issue of Cycles magazine.
Here we find that the Supercycle low bottomed within the area of the previous fourth wave of Cycle degree, an expanding triangle spanning the period between and In this case, the Cycle degree bear market from to was a zigzag that terminated within the area of the fourth Primary wave of the bull market from to This narrow miss nevertheless illustrates why this guideline is not a rule.
The preceding strong third wave extension and the shallow A wave and strong B wave within 4 indicated strength in the wave structure, which carried over into the moderate net depth of the correction. Again, Figure shows what happened. Here we have an illustration from another market of the tendency for a correction to terminate in the area of travel of the preceding fourth wave of one lesser degree.
Our analysis of small degree wave sequences over the last twenty years further validates the proposition that the usual limitation of any bear market is the travel area of the preceding fourth wave of one lesser degree, particularly when the bear market in question is itself a fourth wave. However, in a clearly reasonable modification of the guideline, it is often the case that if the first wave in a sequence extends, the correction following the fifth wave will have as a typical limit the bottom of the second wave of lesser degree.
For example, the decline into March in the DJIA bottomed exactly at the low of the second wave in March , which followed an extended first wave off the December low. On occasion, a flat correction or triangle, particularly if it follows an extension, will fail, usually by a slim margin, to reach into the fourth wave area see Example 3. A zigzag, on occasion, will cut deeply and move down into the area of the second wave of lesser degree, although this almost exclusively occurs when the zigzag is itself a second wave.
Having cumulatively observed the hourly changes in the DJIA for over twenty years, the authors are convinced that Elliott imprecisely stated some of his findings with respect to both the occurrence of extensions and the market action following an extension. The most important empirically derived rule that can be distilled from our observations of market behavior is that when the fifth wave of an advance is an extension, the ensuing correction will be sharp and find support at the level of the low of wave two of the extension.
Sometimes the correction ends there, as illustrated in Figure , and sometimes only wave A ends there. Although a limited number of real life examples exist, the precision with which A waves have reversed at this level is remarkable.
Figure is an illustration showing both a zigzag and an expanded flat correction. Since the low of the second wave of an extension is commonly in or near the price territory of the immediately preceding fourth wave of one larger degree, this guideline implies behavior similar to that of the preceding guideline.
It is notable for its precision , however. Additional value is provided by the fact that fifth wave extensions are typically followed by swift retracements. Their occurrence, then, is an advance warning of a dramatic reversal to a specific level, a powerful combination of knowledge. This guideline need not apply when the market is ending a fifth wave at more than one degree, yet the action in Figure see above reference suggests that we should still view this level as at least potential or temporary support.
One of the guidelines of the Wave Principle is that two of the motive waves in a five-wave sequence will tend toward equality in time and magnitude.
This is generally true of the two non-extended waves when one wave is an extension, and it is especially true if the third wave is the extension. If perfect equality is lacking, a. When waves are larger than Intermediate degree, the price relationships usually must be stated in percentage terms. When waves are of Intermediate degree or below, the price equality can usually be stated in arithmetic terms, since the percentage lengths will also be nearly equivalent.
Thus, in the year-end rally of , we find that wave 1 traveled The guideline of equality is often extremely accurate. Hamilton Bolton always kept an "hourly close" chart, i. You must log in or register to reply here. Different method suits different to traders. Hi, For starting out download books by nse for rpechter modules like technical analysis, fundamental analysis, macro etc.
Thats more than enough material for you on Candlestick Chart Pattern Recognition. As a pattern trader my fev authors are 1. Pattern traders can get much quicker entry and exit than indicator based traders. I bought it from amazon. My fev books are present below: First you have to discover yourself using diffrent trading tools or methods which one exactly suits you.
They can be found in nse website. Thank you for giving reference. Bigalow that book is also very good for beginners. How much it esition help if I read foreign books for Indian stock market? Top books on Stock Market.
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