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A Handbook of Technical Analysis: The Practitioner's Comprehensive Guide to Technical Analysis by Mark Andrew Lim

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CHAPTER 18

Basic Elliott Wave Analysis

LEARNING OBJECTIVES

After studying this chapter, the practitioner and student should be able to:

  • Understand how to identify important market moves based on the Elliott wave principle
  • Describe the various motive and corrective patterns that commonly occur in equity and commodity markets
  • Be familiar with the concepts of wave equality, alternation, and truncation
  • Understand the different wave personalities associated with motive and corrective waves
  • Calculate the minimum price objectives for various wave targets
  • Distinguish between Elliott wave rules and guidelines

Elliott wave analysis is widely used by institutional traders and analysts. The wave principle provides traders and analysts with a unique way of understanding market action, forecasting potential breakouts and significant reversals. This chapter covers all the basics of Elliott wave analysis with various chart examples.

18.1 ELEMENTS OF ELLIOTT WAVE ANALYSIS

Motive, Impulsive, and Corrective Waves

The reader is strongly advised to refer to the original writings of Ralph Nelson Elliott for comprehensive and concise description of Elliott wave analysis. The references are located at the end of this chapter. Readers are advised to refer to Elliott Wave Principle by Frost and Prechter, which in the author's opinion, represents the leading authority in the study and advancement of Elliott wave analysis.

The basic construct of Elliott waves consists of a 5-3 wave formation. This simply ...

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