How Many Waves In the Elliott Wave Theory

A basic understanding of the Elliott Wave Theory states that the movement in the same direction as the trend unfolds in the form of five waves. These are known as motive or impulse waves. While the correction against this trend is in the way of three waves that are also known as corrective waves. The movement that goes in the same direction is labeled as 1,2, 3, 4, and 5. The three corrective waves are marked as a, b, and c. These patterns are seen in both long term as well as short term charts.

Many times, small patterns are identified within bigger ones. So, how many ways in the Elliott Wave Theory?

Let’s check out the wave patterns of the Elliott Wave Theory for a better understanding!

In the model given by Elliott Wave Theory, market prices make an alternating movement between a motive or impulsive phase and a corrective phase on all the time scale that exist within a trend. Impulsive waves are further divided into five waves of lower degree that alternate between the corrective and motive character. Hence, waves 1, 3, and 5 falls under the impulse category, while 2 and 4 are corrective.

Corrective waves are subdivided into three waves of smaller degree and are denoted as A, B and C. The corrective wave has a five-wave impulse of the counter-trend which is Wave A, a retrace which is Wave B and Wave C which is another impulse. All three waves, A, B, and C, make up a more significant degree corrective wave.

When it is a bear market, the downward trend is dominant, and so the pattern is reversed where three waves are up, and five waves are down.

Degrees of Elliott Waves

Elliott Wave degree is used to understand the language of the Elliott waves in order to identify the cycles so that the finance analysts can determine the positions of the waves within the market. Nine degrees of waves were recognized that ranged between Grand Super Cycle degree found in the weekly and monthly time to even sub minuette degree, which is found in a time frame that ranges within hours.

 
Changes in using Elliott Waves in Present Times

Computer technology and the internet have further enhanced the usage of Elliott Waves for assessing the changes in the stock market. Algorithmic trading has a new category of traders who use computer technology to get into more details of the market trends. Moreover, the way trend and counter-trend are defined also changed in present times. However, there are still five waves in the present-day market that move with the trend and three waves that have counter-movements. Therefore, it is still very relevant and useful to use Elliott Wave Theory today. 

To sum up, there is a combination of five and three impulse and corrective waves, but they also have various sub-levels in order to go deeper into the market analysis and to understand crowd psychology.