The ULTIMATE Beginner's Guide to the ELLIOTT WAVE THEORY

welcome to the ultimate beginner's guide to the elliott wave theory in this free video course you will learn the overall rules and guidelines of the elliott wave theory

how to identify basic market movements several wave characteristics like equality alternation truncation and targets you will also learn how institutional

and retail traders use the elliott wave theory as a road map to understand price action and to forecast significant price reversals you will understand how to trade using

elliott waves as a beginner and last but not least the main advantages and disadvantages of the theory if you're new to this channel please consider leaving your like and

subscribing right now as this helps support the ongoing creation of free videos like this one you can also check the ultimate beginner's guide playlist in the video

card or in the video description for more free courses similar to this one without further ado let's begin the course the elite wave theory was created by

ralph nelson elliott elliot was an american accountant that began studying the financial markets in the early 30s the result from that study

was a book called the wave principle in this book elliot claimed that the market followed natural laws that could be measured with fibonacci numbers

in the 40s elliot expanded his ideas beyond the market and wrote a book with an ambitious title called nature's law the secret of the universe he passed away two years after that

the elite wave theory is grounded on a very basic assumption which is that the market moves in a 5 3 wave pattern in other words the market advances for 5

waves then retraces or corrects for 3 waves this is the central idea from which all the rules and guidelines of the elite wave theory come from

the five waves that advance price in one direction collectively form one motive wave and they are labeled from one to five the three waves that retrace against the motive wave collectively form one

corrective wave they are labeled from a to c notice that the large motive wave is broken down into five subwaves the large corrective wave is broken down into

three subwaves here we arrive at the definition of impulse and corrective waves in other words a wave that goes in the same direction as the wave in a larger

degree is called impulse wave and the wave that goes in the opposite direction of the wave in the larger degree is called corrective wave in that sense

waves 1 3 5 a and c are impulse waves because they go in the same direction of the wave in the larger degree waves 2 4 and b are considered to be

corrective waves because they go in the opposite direction of the wave in the larger degree notice that we have this idea of wave degrees we need that waves repeat inside

themselves in multiple degrees in other words elliott waves have a fractal quality in this illustration you can see the fundamental 5 3 wave pattern repeating

inside itself in three different degrees notice how the illustration begins to resemble price action as more degrees are shown according to the elite wave theory there

are nine wave degrees and there is a labeling convention to keep things neatly organized the largest cycle of all is called the grand super cycle then we have the super

cycle the cycle which is the wave count that spans from years to decades the primary degree which is the wave count that spans from months to years the intermediate degree which is the

wave count that spanned from weeks to months the minor degree which is the wave count that spanned from days to weeks the my new degree the minuet and finally

the subminute degree trying to keep track of all nine wave degrees is not a productive exercise keeping track of three wave degrees is already a challenge because there are instances

where you will find multiple possible wave counts in each wave degree there are three elements that characterize elliott waves they are form ratio and time

the waveform is the fundamental 5-3 pattern we already talked about this is the most important element the ratio element is the vertical ratio

between waves which is often used in combination with fibonacci tools according to the theory distinct ways will respect specific fibonacci ratios and that can be useful in certain

aspects of the analysis the third element is time which is the horizontal ratio between different waves which also respect fibonacci ratios according to the theory

out of these three elements the form takes precedence over the others in other words the 5 3 pattern is more important than the vertical and horizontal ratios between different

waves the elite wave theory has different rules and guidelines before exploring each rule and guideline it's important to note that rules cannot be broken otherwise the wave count is

discarded the guidelines are more flexible let's take a look at the main rules of the elite wave theory first rule number one is that wave 2 cannot

extend beyond the start of wave 1. if

that happens we are not talking about waves 1 and 2 anymore rule number 2 is that wave 3 cannot be the shortest wave rule number 3 is that wave 4 cannot

retrace into the price territory of wave 1.

these are simple objective rules that allow the trader to discard many invalid wave counts beyond these three main rules there are two more rules that are a bit more specific

all motive and impulse waves must have five subwaves and even though wave five might not surpass wave three wave three must always surpass wave one let's see a

hypothetical example of rule number one in the first wave count we can see that wave 2 doesn't surpass the beginning of wave 1.

that is a correct wave count according to the first rule in the second wave count we can see that the second wave surpasses the beginning of the first wave therefore

the wave count is incorrect this cannot be considered a wave 2 it's something else rule number two states that wave 3 cannot be the shortest wave

this rule will help you if you find yourself in a situation like this where the middle wave is the shortest this cannot be a wave 3 which is usually

the largest wave in the count what is being labeled as wave 3 4 and 5 here is usually the waves 1 2 and 3 of an extended wave 3 in a lower degree

which is something we'll talk about later in greater detail rule number three states that wave 4 must now retrace into the territory of wave 1.

if it does we are not talking about a wave 4 anymore in this illustration you can see a hypothetical wave count where the wave 4 retraces into the territory of wave 1.

if this is the case we need to discard this wave count as it breaks the third rule on the right you can see a correct wave count according to the third rule because wave 4 does not retrace into the

territory of wave 1.

rule number 4 states that all motive and impulse waves must have 5 subwaves in other words the subways that go in the direction of the wave in a larger

degree must always have five waves otherwise we are not talking about motive and impulse waves anymore on the left we can see a hypothetical example of what would be a correct

representation of impulse and motive waves the subways that go in the direction of the wave in a larger degree move in patterns of five subwaves on the right we can see an example of

incorrect wave count where the sub waves that go in the same direction of the wave in a larger degree move in patterns of three rule number five claims that even though wave five doesn't have to surpass wave

number three wave three must always surpass wave number one otherwise we're not talking about a wave three anymore on the left we can see an example of an

incorrect wave count because wave 3 fails to surpass the ending point of wave 1.

on the right we can see an example of a correct wave count because even though wave 5 fails to surpass wave 3 in a phenomenon called as truncation wave 3 surpasses wave 1.

these 5 rules will already give you a good starting point for performing wave counts correctly as they will help you eliminate many incorrect wave counts let's now observe simple examples of

wave counts using real price charts so you can have an idea about the details and problems that can emerge when we deal with real markets take a look at this chart pause the video and see if you can

detect five waves going up in three waves going down as the elite wave theory suggests this wave count is reasonable because it doesn't break any of the five rules that

we established previously wave 2 doesn't extend beyond the origin of wave 1.

wave 3 is not the shortest wave wave 4 doesn't retrace into the territory of wave 1.

the impulse waves can be broken down into 5 subwaves each although that can be hard to see and wave 3 surpasses wave 1.

just for the sake of illustration in this other chart you can see a clear example of 5 waves going to the downside it's worth mentioning that the elite wave rules are exactly the same for

bullish and bearish markets but it's easier to study what happens in bullish markets first and then transfer that knowledge to bearish markets later

given these rules let's now go deeper into the study of motive waves there are mainly two types of motif waves the impulse wave and the diagonal triangle

the impulse wave as it was already mentioned previously is the wave that goes in the same direction of the wave in the immediately larger degree in

other words waves 1 3 5 a and c are considered to be impulse waves waves 2 4 and b are corrective waves diagonal triangles are a particular type

of impulse wave where the collection of subwaves form a triangular shape in the chart there are two variations of diagonal triangles the leading diagonal and the ending

diagonal the terms leading and ending refer to where the triangles appear when the diagonal triangle occurs in waves 1 or a they are called leading diagonals

because they lead to other impulse waves like waves 3 and 5 in the case of a leading diagonal happening in wave 1 or wave c in the case of a leading

diagonal happening in wave a ending diagonals are impulse waves that terminate the wave in the immediately larger degree in other words ending diagonals can only

happen in wave 5 or wave c if you want to know more about chart patterns like triangles check out the ultimate beginner's guide to chart patterns in the video card in this image you can see an

illustration of a leading diagonal happening in wave 1.

notice how the sub-waves form a triangular shape highlighted by the blue converging lines in this other image you can see the other possible place where a leading diagonal triangle can happen which is in

wave a here you can see an ending diagonal happening in wave 5. this ending

diagonal triangle would finish the motive wave in the immediately larger degree the other possibility for an ending diagonal is in wave c as you can see in this other image

even though leading and ending diagonals have five waves these waves sometimes respect peculiar patterns leading diagonals can be broken down into two patterns of five waves

the more intuitive pattern is the one where five and three waves alternate this is also known as the 53535 pattern as you can see in the image

another possibility of leading diagonals is a pattern where only three waves appear in each of the five waves of the triangle as it is shown in the image

this is a case where weighs 1 3 and 5 inside a triangle we have 3 waves instead of 5.

ending diagonals always respect the 3-wave pattern as a rule it's more common for leading and ending diagonal patterns to be contracting but they can also be expanding

whether we are talking about contracting or expanding triangles the rules for sub waves remain constant for the sake of illustration let's observe an example of the last common

expanding triangle in this image you can see how price reverses after the fifth wave of the triangle is completed in this next image you can see the

breakdown of the subwaves of this expanding triangle one of the challenges you'll find with elliott wave counting is that the different wave degrees are not clearly defined in certain places

and that's something that will confuse you in real time charts you have to pay attention to certain kinds of details here as well for example we know that one of the rules of elliott wave is that wave 4

cannot retrace into the territory of wave 1 if we're talking about impulse waves but that can happen if we're talking about triangle notice that in the larger wave degree that composes this triangle

the waveform does retrace deep into the territory of wave 1. however in the smaller wave degree that doesn't happen because we are talking about impulse waves within a triangle

given these details about motive waves we must now move on to the study of corrective waves which is a bit more intricate and sometimes a bit complicated this is one of the disadvantages of the

elite wave theory as you learn later on for now let's observe the classic rules for the corrective waves there are mainly four types of corrective waves the zigzag the flat

the triangle and the complex which is a combination of zigzags flats and triangles let's begin by exploring the zigzag type of correction

zigzag follows a 5 3 5 pattern meaning that wave a breaks down into five subwaves wave b breaks down into three waves and

wave c breaks down into five waves another rule about zigzags is that wave b must never retrace beyond the origin of wave a one general guideline of zigzags

remembering that guidelines are not rules is that wave c will usually extend beyond wave a but it doesn't have to there are more complicated types of zigzag formations called the double

zigzag in the triple zigzag the peculiarity of these types of zigzags is that they are connected by a wave x which is a three wave pattern usually

for example the double zigzag is composed of two abc formations connected by one wave ax in the middle the first abc pattern is labeled as w and the

second abc pattern is labeled as y the triple zigzag is composed by three abc formations connected by two waves act

the third abc pattern after the second wave x is labeled as z from these formations it's easy to see that a possible combinations of corrective ways can get pretty complicated

the second type of corrective wave is the flat which has three subtypes they are called the regular flat the expanded flat and the running flat

all flats can be broken down into three waves that follow a 335 pattern there are two rules that spiral from this notion in a flat wave 8 must not be

a triangle formation the other rule is that wave c will unfold as either an impulse wave or a diagonal triangle one characteristic that differentiates

flats from zigzags is that wave b retraces near or beyond the origin of wave a the degree to which that happens is what leads to the three different types of

flats in a regular flat wave b will retrace near the beginning of wave a and wave c will end near the end of wave a in an expanded flat wave b will retrace

beyond the origin of wave a and wave c will extend beyond the end of wave a this is also known as an expanded pivot

formation in other modes of analysis in a running flat wave b will retrace beyond the origin of wave a and wave c will fail to extend beyond the end of

wave a the third type of corrective wave is the triangle which has two main types the contracting and the expanding triangles

contracting triangles have three subtypes the ascending the descending and the symmetrical the expanding triangle has only one type which is often referred to as the

reverse symmetrical triangle the rule about triangles is that they must unfold into five waves labeled from a to e and at least four out of these five

waves must develop a zigzag type pattern let's quickly reveal the overall shape of each type of triangle starting with the contracting type first the first contracting triangle is the

ascending which is marked by ascending lows and flat highs then we have the descending triangle which has descending highs and flat lows

in the symmetrical triangle which has descending highs and ascending lows in the expanding triangle type we have the reverse symmetrical triangle which is marked by ascending highs and

descending lows higher highs and lower lows if you are interested in chart patterns like triangles please check the ultimate beginner's guide to chart patterns in the video card

one main difference between contracting and expanding triangles is that wave c is allowed to surpass the start of wave b in an expanding triangle triangles mainly appear in four places

the wave 4 wave b final wave in a double three or triple three combination which we'll talk about in a moment or in wave x

triangles are not expected to appear in wave 2 unless we are talking about corrective combination we move on now to the study of complex corrective patterns which are

combinations of zigzags flats and triangles separated by waves x let's begin with the double three combinations because they are easier double tree combinations can appear in

six forms two flats one flat and one triangle one flat and one zigzag two zigzags one zigzag and one flat

or one flat and one triangle another way of seeing this is that the double three combination follows the pattern w x y the triple three combination pattern

follows the w x y x z pattern triple three corrective patterns can appear in the following 12 forms three flats two flats and one zigzag

two flats in one triangle a flat zigzag and a flat a flat zigzag and a triangle a flat in two zigzags three zig zags

two zig zags and one flat two zig zags and one triangle a zigzag a flat and a zigzag a zigzag and two flats and a zigzag a flat in a triangle

the wave x that separates the double three or triple three patterns can be any of the three patterns meaning they can be either a zigzag a flat or a triangle

one peculiarity here is that triangles can never be the first pattern in a corrective pattern or appear more than once in a double three or triple three corrective pattern double tree and triple three corrective

patterns are probably the most challenging aspect of elliott wave theory especially when trying to deal with these in real time charts and in multiple wave degrees charts can get

pretty messy and overwhelming now we move on to the study of certain peculiarities of waves like wave extensions truncation alternation and equality

let's begin first by talking about wave extensions wave extensions happen when one of the impulse waves display additional subdivisions in such a way that the subdivisions appear to be in

the same wave degree this will cause one of the impulse waves to be unusually larger than normal wave extensions can happen in any of the impulse waves but they are more likely

to occur in wave 3 which is usually the largest and strongest wave in this illustration you can see a hypothetical representation of an extended wave 3.

the sub-waves of wave 3 appear to be in the same degree as the other impulse waves which are 1 degree larger wave truncation is simply when wave 5

fails to surpass the end of wave 3.

in this image you can see a hypothetical example of a truncated wave 5.

unlike wave 3 which is required to surpass wave 1 wave 5 doesn't have to surpass wave 3.

the principle of wave alternation or guideline of wave alternation is a more nuanced aspect of wave theory it claims that patterns in the same wave count should alternate their type

for instance if wave 2 is a simple and sharp correction wave 4 should be complex and flat within a 3 wave corrective pattern the b wave should be different than the a and

c waves in a 3 wave corrective pattern if the a wave is simple then the b wave should be complex the principle of alternation also

applies to complex corrective patterns the exception to the alternation principle that there should not be alternation between waves 2 and 4 of a triangle pattern

the guideline of wave equality suggests that if one of the impulse waves are extended the other two remaining waves will be of equal size roughly speaking

for example if wave 3 is extended which is the most common scenario then wave 1 and wave 5 will have roughly the same size however that can happen with any impulse

wave if wave 1 is extended then waves 3 and 5 will have roughly the same size and it logically follows that if wave 1 and 3 have the same size wave 5 could be

extended elliott wave theory is employed in alignment with fibonacci ratios which will give probable projections to the trader in terms of price and time

in other words fibonacci ratios will guide the trader in knowing how far future waves should go in relation to already existing waves in the time duration of these waves as well

before we explore the basics of fibonacci projections for elliott waves we should understand the fundamental relationship between the fibonacci sequence and l8 waves

the basic 5 3 pattern that underlies elliott waves is based on two fibonacci numbers summing the five impulse waves with the three corrective ways we get eight which

is also a number in a fibonacci sequence if we go one wave degree further we get 21 waves within the motive wave and 13 waves in the corrective wave

both 21 and 13 are numbers in the fibonacci sequence and they sum up to 34 which is also in the sequence looking at a third wave degree we would

have 89 waves in the motive part and 55 waves in the corrective part summing up to 144 waves once again all numbers in the fibonacci sequence

as a general guideline when projecting future waves the most powerful fibonacci ratios should be used these are the 161.8 200

261.8 300 and 361.8 for example wave 3 should fall near any one of these ratios if we are measuring it against wave 1.

the same is true for a wave 5 in comparison to wave 1 or wave 3.

in the case of corrective waves the trader should mainly look for the 61.8 50 and 38.2 percent ratios for simplicity's sake

for example wave 2 should be either 61.8 50 or 38.2 percent of wave one the same is true for a wave four in relation to wave three

an intuitive pattern happens in waves a b and c wave b in general will be either 61.8 50 or 38.2 percent of wave a and weight c

will be between 161.8 and 361.8 of wave a this is not true of course once beginning to talk about the exceptions

of more complex corrective wave counts the point is that you can always make good projections by following the most powerful fibonacci ratios fibonacci ratios also work in

combination with elliott waves in the horizontal axis of the chart meaning that there is a time-based fibonacci relationship between elliott waves for example if the time it takes to form

wave 1 is considered 100 then the termination of the other impulse waves is likely to follow a fibonacci ratio like 161.8 or

261.8 percent for example let's observe a real example of the vertical and horizontal fibonacci ratios working in the same wave count in this image we have a straightforward wave count

you can pause the video now and try to count the sub waves to see if you can just as an exercise in this next image you can see that i plotted a fibonacci 2 on wave 1. notice

how wave 5 terminates almost exactly at the 200 percent ratio in this next image you can see a fibonacci time 2 plotted from the

beginning to the end of wave 1. notice

how wave 5 terminates at the percent ratio we can try different measurements to find different fibonacci ratios intersecting for instance

if i plot the fibonacci time tool from the beginning of wave 1 to the end of wave 3 you'll see that a 161.8 percent ratio falls almost exactly

where the 461.8 ratio from the last image fell that would be a temporal fibonacci convergence we can finally add a third temporal convergence in there by plotting the

fibonacci times two from the beginning of weight three until the end of wave three and you see that now the two hundred percent ratio falls roughly in the same

area as the last two images we analyzed let's take another real example now from the one hour chart of tesla observe that now we have a wave count in a bearish market

if we plot a fibonacci extension from the beginning of wave 3 until the end of wave 4.

we observed that the end of wave 5 falls almost exactly at the 161.8 percent ratio in this other image you can see that the fibonacci ratio tool plotted from the

beginning to the end of wave 3 will point to the same level but now with the 200 percent ratio this next image we can see the fibonacci time 2 plotted from the beginning of

wave 3 to the end of wave 4. following

the plot pattern of the fibonacci extension tool notice how the 200 ratio points almost perfectly to the ending point of wave 5.

this image we can see the fibonacci time 2 plotted from the end of wave 1 until the end of wave three now the 261.8 percent ratio is pointing to the

same area predicting the end of i5 interestingly enough for the followers of this channel if we plot a standard pitchfork using the beginning of wave 3 as the a axis

in the beginning and end of wave 4 as the b and c axis respectively you see that price respects the lower line of the pitchfork pretty well in this other image we can see yet

another tool pointing to the same area this is a fibonacci channel the range of the orange area which is the result from plotting the channel using points 2 3 and 4

is then extrapolated using a fibonacci ratio to create the gray channel notice how the gray channel captures the end of wave 5.

let's now move on to how to trade the elliott waves as a beginner if you want to trade just using l8 waves you will need to get deeper into the methodology this is just a beginner's

guide however what you have in this course you can already use the theory to your advantage in certain situations for example let's say you have a

suspicion that price will reverse after a simple bearish reversal divergence in the rsi as we can see in this chart as you may know the problem with divergences is that

they can continue happening generating a series of false signals that would be obviously bad for any trader this is a situation where the elite wave theory can help by providing a road map for you

to see if price is indeed about to reverse it's not the only tool by any means but it can be helpful the way you do this is by performing a wave count on the recent price action

in this image you can see an example of a valid wave count that supports the idea that this bearish reversal divergence indeed precedes a major reversal notice that we have an example of an

extended wave 5 in here and following the principle of equality waves 1 and 3 are roughly the same size even though wave 3 is slightly larger than wave 1 which is in perfect

alignment with the theory rules and guidelines according to this wave count the market is about to reverse to the downside with more significance before seeing the outcome let's quickly

perform a fibonacci analysis of this wave count in this chart we can observe the fibonacci time tool being plotted from the beginning of wave 1 until the end of

wave 2.

notice how the probable end of wave 5 is intersecting with the 461.8 percent ratio which is additional evidence that this is indeed a reversal

we can also plot the fibonacci time tool from the beginning of wave 105 until the end of wave 305 notice how the 200 ratio is now intersecting with a probable reversal

point in other words we have two fibonacci time ratios happening in the same place let's observe now the vertical fibonacci ratios

in this image you can see the fibonacci ratio tool being plotted on wave three notice how the 200 ratio falls almost exactly in the area we have been looking for the major reversal

this is also true if we plot the fibonacci ratio to on wave 105 as you can see in this other image we can also plot the fibonacci extension

tool from the beginning of wave 1 to the end of wave 4 and you'll see that the area of interest is correlated with a 100 ratio the point here is that we have a valid

wave count to support the original reversal divergence idea and we have several fibonacci ratios converging to the same area both in the vertical and the horizontal axis of the market

beyond that notice that the current candle is an inside candle which means a temporary stop in price that can happen before a reversal if you want to know more about candlestick

patterns and their meaning please check the ultimate beginner's guide to candlestick patterns in the video card or the video description let's now see the outcome of this trade idea

in this image you can see how the area of interest indeed was a major turning point in this market to summarize the beginner's way of using the elliott wave theory to trade you

should use the rules and guidelines to perform wave counts that support an already existing idea and also use convergence of fibonacci vertical and horizontal ratios in order to build

strength in the analysis it's time now to explore the main advantages and disadvantages of the elite wave theory let's begin by taking a look at the advantages first

the first thing that becomes clear when a trader begins to use the l8 wave theory is the sense that the trader is no longer lost as to where price action is headed next

in other words the theory provides a detailed roadmap for the trader to navigate the market the second advantage is that the elliott wave theory is an established trading methodology among not only retail

traders but a few institutional traders as well there will be certain types of traders who will specialize only in elliott wave counting in order to trade in terms of disadvantages there are a

few as you probably were able to tell throughout this course there are too many arbitrary rules in the elite wave theory this can make the trader's life very

complicated in real time the greater the number of rules and guidelines to follow the greater the degree of deliberation a trader must do and the greater the chance of analysis paralysis

that's especially true if the trader is trying to keep track of too many wave degrees at once second disadvantage is that wave counting is subjective two different traders can look at the

same piece of price action and arrive at two different wave counts that is something that adds to the overwhelming effect of this methodology and it can also lead to hesitation and

analysis paralysis eventually the third disadvantage is that the elliott wave theory has no science behind it it's based on the anecdotal evidence collected by ralph nelson elliott

we can certainly see that the markets do follow the 5 3 wave pattern sometimes but the theory lacks a solid scientific foundation which is important because it's easier to trust the method if you

have a solid scientific this finishes the ultimate beginner's guide to the elliott wave theory i hope you were able to learn something new and useful with this video i have many different ultimate beginners

guides in this channel you can check them out in the youtube card or in the video description or by searching the channel main page if you're interested in becoming one of my students and learning how to trade

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clicking the like button subscribing to the channel activating the notifications and leaving your feedback below in the comment section thank you very much for watching and i

hope to see you in the next videos take care you