What is Elliott Wave Theory?

chatstickforbrand
Mar 16, 2023
2 min read

What is Elliott Wave Theory?

The Elliott Wave Theory comes from the name of Ralph Nelson Elliott, an accountant who wrote the book "The Wave Principle", adapted from Dow Theory, which Elliott Wave Theory is formed from 3 concepts combined:

- Action = Reaction, movement in continuous waves (when going up, must go down When it's down, it has to go up)

5 upward waves: Upward 1-2-3-4-5 is called Impulse Wave and Downward a-b-c is called Corrective Wave.

- Stock cycle or market cycle in 1 cycle consisting of Impulse Wave and Corrective Wave.

Impulse Wave

Wave 1 : This is the first wave after the market has corrected from the previous downtrend. The movement may not be much. because the trading volume is still thin but there is a lot of sales force

2nd wave : It is a wave that has a correction from investors who invested in the 1st wave that has gained considerable profits.

Wave 3 : This is the wave with significant increase in trading volume. It's a wave for small investors. Because the most profit

4th wave : When a peak from the 3rd wave is found, there will be selling pressure. The fundamentals of this wave have reached the right price. or have other negative forces affecting but because it is an uptrend Investors have high confidence. and believe that the market can continue thus creating the 5th wave

Wave 5 : It is a wave that comes because of the market sentiment.

Corrective Wave

Wave a : It is a wave in which investors sell out in large quantities. Most of them are caused by bad news that suddenly affects the fundamentals.

Wave b : is for short-term speculators. who still believe that the factor does not affect the stock price much Therefore making another purchase, causing Wave b to rebound, which will rise not higher than the peak of the 5th wave.

Wave c : A wave caused by panic selling of investors who have lost hope for that stock.

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