The Elliott Wave Principle is one of the most powerful tools in technical analysis. Developed by Ralph Nelson Elliott in the 1930s, this theory posits that financial markets move in repetitive, recognizable cycles driven by investor psychology.
Wave 1: Disbelief. Investors think it is just a bounce in a bear market.Wave 2: Fear. The market drops, and people think the old trend is returning.Wave 3: Recognition. The crowd joins in. This is the strongest part of the trend.Wave 4: Profit taking. Smart money starts exiting, but the trend isn't dead yet.Wave 5: Euphoria. Retail traders pile in, but the professional money is already gone. How to Use This Guide
Impulse = 5 waves, Corrective = 3 waves, Rule 3 is your anchor. Elliott Wave Cheat Sheet Mento Pdf
You can project targets for Wave 4 and Wave 5 by drawing parallel trendlines. Connect the peaks of Wave 1 and Wave 3, then draw a parallel line starting at the bottom of Wave 2. This often provides the exact support zone for Wave 4. 4. Corrective Wave Patterns Explained
: The initial move up. Usually driven by a small group of early buyers as the previous downtrend ends. The Elliott Wave Principle is one of the
What do you analyze most often? (Day trading or long-term investing?)
One of the most well-known original sources for a concise Elliott Wave guide is the cheat sheet created by , President of TradersCoach.com®. This document serves as a direct introduction to the theory, explaining that markets move in a 5-wave pattern in the direction of a major trend and a 3-wave pattern as a correction. McDowell's work, which he credits with enhancing his trading profits for years, provides a foundational overview that many modern cheat sheets build upon. Investors think it is just a bounce in a bear market
The impulse wave is the foundation of Elliott Wave analysis. It is a five-wave structure that moves in the direction of the larger trend and must obey strict rules.
Motive Phase (Trend) Corrective Phase (Counter-Trend) (3) / \ (B) / \ / \ (1) \ (A)/ \ / \ (4) / \(C) / \ / / / \ / / / (2)/ / The Motive Phase (5-Wave Sequence)
While it is often the longest, Wave 3 cannot be shorter than both Wave 1 and Wave 5.