Mapping the Market: Introduction to the Elliott Wave Principle

The Rhythm of the Market: 5-3 Cycle

Ralph Nelson Elliott discovered that markets follow a natural pattern of "5 waves forward, 3 waves back".

Motive Waves: Composed of waves 1, 3, and 5, driving the market in the direction of the main trend.

Corrective Waves: Composed of waves A, B, and C, moving against the main trend.

Fractal Structure

The beauty of the theory lies in its "Compound Structure." A large Wave 1 subdivides into 5 smaller waves; a large Wave 2 contains a smaller A-B-C structure. The patterns are self-similar on all timeframes.

The Iron Rules

Wave 2 cannot retrace more than 100% of Wave 1.

Wave 3 is never the shortest motive wave.

Wave 4 does not enter the price territory of Wave 1.