Mastery Series This Lesson: Levels of the Trend Ralph Nelson Elliott The - Pattern The basic rules orrective Variations Final Thoughts Levels of the Trend Markets Move in ycles We know markets move in cycles No trend ever goes straight up or down When it does, it must correct These cycles are inevitable Stocks do this Not this PGE
Three levels of Trend Dow Theory states that there are levels of the trend Primary Intermediate Minor Each level of trend has it s own cycles Minor Intermediate Primary Ralph Nelson Elliott Ralph Nelson Elliott merican Economist Studied Dow s work extensively in the 90s Discovered the fractal nature of markets ccurately predicted to the day the bottom of the market in 9 Wrote Nature s Law - the secret of the universe PGE
What is Nature s Law? Observed that stock market pricing is a reflection of social behavior That society behaves in cycles just like any aspect nature moves in cycles alls his work the wave principle Proposes that the market behaves according to a set of natural laws that can be known Elliott Wave Principle Robert Prechter is considered the modern expert of the theory Published the definitive book Elliott Wave Principle in 978 with J Frost Since that time the practice continues to garner wide acceptance Though difficult to understand, is credited with helping identify many major turns The ore Pattern Two types of waves: The - Pattern Motive (impulse) orrective Motive waves move in a pattern of waves orrective waves move in a pattern of waves Each fractal is made up of the - pattern PGE
IMPORTNT! Motive waves are always wave patterns orrective waves are not always (there are variations which we will talk about later) Motive waves are always in the direction of the prevailing trend of one greater degree orrective waves interrupt the progress of the prevailing trend of one greater degree PGE
Mastery Series Fractals Forever t a target either close the trade OR adjust stops to lock in profit Watch for candlestick warnings If you get nervous be prepared to adjust to a very tight stop Wave Degree Supermillennium Prechter/Frost additions Elliott additions Original Dow Levels of the Trend Millennium () Submillennium Prechter/Frost additions () () () II III IV s against the trend () () () () V a b c Grand Supercycle I Supercycle (I) (II) (III) (IV) (V) (a) (b) (c) ycle I II III IV V a b c Primary Intermediate () () () () () () () () Minor a b c Minute Elliott additions s with the trend i ii iii iv v Minuette (i) (ii) (iii) (iv) (v) (a) (b) (c) Subminuette i ii iii iv v a b c Micro Submicro () () () () () () () () Miniscule PGE
The asic rules Rules of Wave Development Motive Waves: Subdivides into Messy waves Moves in the same direction as trend of one larger degree Wave retraces less than 00% of wave Wave retraces less than 00% of wave Wave always progresses beyond wave Wave is never the shortest wave Messy orrective Waves: orrections are never s (except triangles) Interrupt the direction of the trend at one higher degree Never retrace more than 00% of the preceding wave of the same degree Represent conflict with the prevailing trend and tend to get a little messy PGE 6
orrective Variations Oh the confusion! orrective waves are a bit less predictable There are several variations for how they can form over time dd the fractal nature and it can become down right confusing! This is where most people get very confused (LOST) with the wave principle orrective Variations There are 9 corrective pattern variations road categories: Zig Zag ( types) Flat ( types) Triangle ( types) PGE 7
Zig Zag corrective Divides into a clean -- structure Subdivides -- omes in types Zig Zag Double Zig Zag Triple Zig Zag PGE 8
Flat corrective Divides into a clean -- structure Subdivides in a -- pattern omes in types: Flat Expanded Flat Running Flat PGE 9
Triangle corrective pattern but not a onsists of overlapping waves Subdivide ---- Label ---D-E Three types: ontracting arrier Expanding ontracting Triangle arrier Triangle PGE 0
omments on Triangles Notice these triangles reflect the normal chart pattern triangles you are familiar with The sub-waves of triangles usually divide as zig-zags, but can be much more complex Sometimes triangles develop as 9 waves instead of wave patterns Elliott suggests triangles always break as a continuation pattern, but statistics do not support this statement My Thoughts Final Thoughts Elliott Wave is a study that takes much time and practice to master In my experience it is often best used in hindsight to see where the market has been When you can identify a rd wave, it is usually the most profitable wave to trade Use the principle as best you can but do not become bound by it PGE