Zig Zag Rules

Zig Zag Rules

The rules and guidelines that govern specific waves are described below and along with the specific waves to which they apply. You should note that rules are indeed requirements. If you find that a rule has been broken, even slightly, you should perform an alternative wave count. On the other hand, guidelines don`t have to be true, but they are true so often (somewhere on the order of 80-90% of the time) that you can assume they`re true and you can rely on. 80% reliability is a great statistical advantage in the stock market. It is these guidelines that provide the true predictive power behind Elliott`s wave theory. Rule 16(c) was a proposed rule change at the 1976 Republican National Convention. The classical definition of correction waves are waves that move against the current of a greater trend. Compared to pulse waves, correction waves are much more varied and less clearly identifiable. Sometimes it can be quite difficult to identify correction patterns until they are complete. However, as we explained above, the trend and counter-trend can unfold in the correction model in the current market, especially in the Forex market. Correction waves are probably better defined than waves that travel in three, but never in five.

Only pattern waves are five. Some of the most important Fibonacci ratios can be deduced as follows: wave 5 does not have the great enthusiasm and strength found in wave 3 rallying. Wave 5 Vorsprung is caused by a small group of traders. Although prices are reaching a new high above the peak of wave 3, the power rate or strength of wave 5 is very low compared to wave 3. If the waves you are looking at are usually visible (you can see some of the fluctuations but not identify the internal waves) on the first time graph listed and clearly visible (you can identify most of the internal waves) in the second time frame, we use the following wave level: We will look at a graphical structure from a significant low or high on a daily chart, which includes all available data. If you use a monthly chart, start the waves in the cycle note, If a weekly chart, start with the primary degree and daily as a minor or intermediate degree. The pattern sequence is similar to the sequence of Fibonacci numbers. If we find that the number of fluctuations on the graph is one of the numbers in the pattern sequence, we can expect the current trend to expand further. Elliott was able to analyze the markets in more depth, identify the specific characteristics of the wave patterns, and make detailed market forecasts based on the models. Elliott based some of his work on Dow theory, which also defines price movements in terms of waves, but Elliott discovered the fractal nature of market action.

Elliott first published his theory of market models in 1938 in the book The Wave Principle. At the end of wave 4, more purchases begin and prices begin to recover. The fourth wave is usually clearly corrective. Prices can move sideways over a long period of time, and the fourth wave typically follows less than 38.2% of the third wave. The volume is much lower than that of the third wave. This is a good place to buy a retreat if you understand the potential of Wave 5. Yet the fourth waves are often frustrating because they don`t progress in the broader trend. Wave 1: In Elliott wave theory, the first wave is rarely obvious at first. When the first wave of a new bull market begins, the fundamental news is almost entirely negative. The current trend is still considered to be strongly in force. Fundamental analysts continue to revise their earnings estimates downwards; The economy probably doesn`t look strong. Sentiment surveys are decidedly bearish, put options are fashionable, and implied volatility in the options market is high.

Volume could rise somewhat as prices rise, but not enough to alarm many technical analysts. The Wave 3 Rally picks up speed and gets the better of Wave 1. As soon as the maximum of wave 1 is exceeded, the stops are removed. Depending on the number of stops, the gaps remain open. The deviations are a good indication of an ongoing wave 3. After disabling stops, the Wave 3 rally caught the attention of traders The correction waves are divided into 3 smaller waves called ABCs. Correction waves begin with a five-wave countertrend pulse (wave A), a retrace pulse (wave B) and another pulse (wave C). The 3 waves A, B and C form a larger correction wave (2) the triangles overlap five wave materials that divide 3-3-3-3-3. They appear to reflect a balance of forces, resulting in lateral movement typically associated with decreased volume and volatility. Triangles fall into four main categories, as shown in Figure 18.

These figures show that the first three types are within the range of the previous price evolution, in so-called regular triangles. However, it is quite common, especially in contracting triangles, for wave b to exceed the beginning of wave a, which can be called a current triangle, as shown in Figure 19. A single “wave” consists of an 8-wave structure, which in turn consists of structures similar to 8 waves. In the diagram below, note the 8 waves (1-5 and A,B.C) marked in gray. Within these 8 waves, structures similar to 8 waves are marked The degree of marking of your wavestructure is not particularly important unless you are a long-term culprit, but you need to be consistent in your label. If you also check and rely on the graphs of others, such as The Elliott Wave Lives On Site or Elliott Wave International, it is very useful to use wave levels that match theirs. A triangle is a lateral movement associated with a decrease in volume and volatility. The triangles have 5 sides and each side is divided into 3 waves, creating a 3-3-3-3-3-3-3 structure. There are 4 types of triangles in Elliott wave theory: ascending, descending, contracting and expanding. They are illustrated in the following graphic. The biggest change in the market today compared to that of the 1930s is the definition of a trend and a counter-trend movement. We have four main classes: stock exchange, forex, commodities and bonds.

Elliott`s wave theory was originally derived from stock market observation (i.e. Dow theory), but some markets such as Forex are more likely to have a ranking market. The Fibonacci ratio is useful for measuring the purpose of the motion of a wave in an Elliott wave structure. Different waves in an Elliott wave structure refer to each other with the Fibonacci ratio. For example, in the momentum wave: • 0.618 is obtained by dividing any Fibonacci number by another Fibonacci number immediately afterwards. For example, 8 divided by 13 or 55 divided by 89 • 0.382 is derived by dividing any Fibonacci number in order by another Fibonacci number located at two digits to the right of the sequence. For example, 34 divided by 89 • 1.618 (golden ratio) is derived by dividing any Fibonacci number in the sequence by another Fibonacci number found 1 digit to the left of the sequence. Example: 89 divided by 55, 144 divided by 89 zigzags (5-3-5; contains three variants: single, double, triple); The Fibonacci retracement in technical analysis and Elliott wave theory refers to a market correction (countertrend) that should end in support or resistance zones characterized by high Fibonacci levels. It is then expected that the market will turn around and resume the trend in the main direction. Undoubtedly, the business environment we face today is completely different from what it was in the 1930s, when Elliott developed his wave principle. The legitimate question is whether the Elliott Wave principle can be applied in today`s new business environment. If it makes sense to expect today`s cars to be different from those of the 1930s, why should we assume that a 1930s business technique can be applied to today`s business environment? In today`s market, 5 waves are still occurring in the market, but our years of observation suggest that a 3-wave movement is more common in the market than a 5-wave movement.

In addition, the market can move in the same direction in a corrective structure. In other words, the market can develop in a corrective structure; It moves on the order of 3 waves, gets a retreat, and then continues in the same direction in a 3-wave correction movement. Therefore, we believe in today`s market, trends don`t need to be in 5 waves and trends can unfold in 3 waves. So it`s important not to force everything into 5 waves when trying to find the trend and label the chart. Below is the list of important Fibonacci retracement and Fibonacci extension ratios for the financial market: The correction models fall into four main categories: apartments (3-3-5; includes three variants: regular, extended, continuous); Wave B: Prices are reversing to the upside, which many see as a recovery from the long-gone bull market. Those familiar with classical technical analysis can see the top as the right shoulder of a head and shoulder inversion model. The volume during Wave B is expected to be lower than in Wave A. At this point, fundamentals are unlikely to improve, but they probably haven`t turned negative yet. Three types of 3-3-5 corrections were identified based on differences in their overall form. In a regular superficial correction, wave B ends roughly at the beginning of wave A, and wave C ends a little behind the end of wave A, as we have shown in Figures 14 and 15. Much more common, however, is the variant known as the extended area, which contains an extreme price higher than the previous pulse wave. In extended apartments, wave B of model 3-3-5 ends above the starting level of wave A, and wave C ends substantially above the final level of wave A, as shown in Figures 16 and 17.

All models presented here take the same form, whether as part of a broader upward or downward trend.