The Elliott wave rules - Motive waves

The motive waves: It's the pattern of the five wave, wave 2 corrects wave 1, wave 4 corrects wave 3. The sequence of wave 1 to wave 5 is corrected by the a b c sequence. - The rules of impule wave:   + Wave 1 can be the impulse wave, or leading diagonal triangle pattern.   + Wave 2 cannot retrace past the beginning of the wave 1.   + Wave 3 must be the impulse wave.   + Wave 3 cannot be the shortest wave of three impulse wave (1,3,5). It is almost the longest wave.   + Wave 4 cannot overlap the pick of wave 1.   + Wave 2 and wave 4 must have the alternations (scale of price or the patterns).   + Wave 5 can be the impulse wave or diagonal triangle pattern.

The extentions:

    The extentions are the elongated impulse waves with exaggerated subdivisions. It only appears on one of the impulse waves. Most extensions occur in the 3rd wave.

The truncations:

   The truncations is the situation that the 5th wave cannot move beyond the end of the 3rd wave. It often occurs following the strong extension of the 3rd wave.

The ending triangle ( 3-3-3-3-3)

   The ending triangle is the special type of motive wave, not yet the impulse wave. It take a wedge shape pattern with two converging lines, with each subwave subdividing into 3 wave.
You can see it in the image below:

The leading triangle (5-3-5-3-5)

   The leading triangle pattern is a special type of motive waves too, but the structure is not the same with the ending triangle. The 1st, 3rd, 5th wave of the leading triangle subdivide into 5 wave.

Basic Elliott wave theory- essential concepts

Introducing: Ralph Nelson Elliott (1871–1948), a professional accountant, discovered the underlying social principles and developed the analytical tools in the 1930s. He published his theory of market behavior in the book The Wave Principle in 1938, summarized it in a series of articles in Financial World magazine in 1939. The wave principle is dicovery that social or crowd, behavior trends and reverses in recognizable patterns. Using stock market data as his main research tool, Elliott discovered that the ever-changing path of stock market prices reveals a structural design that in turn reflects a basic harmony found in nature.

Until now, the Elliott wave theory is still one of the famous forcasting tools of the price movements. At now, one of the best research about elliott wave you can refer detail on "Elliott wave principle" Robert Prechter's books, search it on google.

The analysing system of elliott wave base on the wave patterns he discovered, at first we must understand the structure and the rules of the waves:

The five wave pattern, and the cycle:

The movement of the prices take the form of five waves of specific structure; Three waves of them, which are labeled 1,3,5 called impulse or motive wave, it indicates the direction of the trend, they are seperated by 2 countertrend interruptions, which are labelled 2 and 4, called corrective wave ( partial retracement).

"R.N. Elliott did not specifically state that there is only one overriding form, the "five wave" pattern, but that is undeniably the case. At any time, the market may be identified as being somewhere in the basic five wave pattern at the largest degree of trend. Because the five wave pattern is the overriding form of market progress, all other patterns are subsumed by it." - cited in Robert Prechter' book.

The rythm of five wave up and three wave down makes the complete cycle of eight waves. '1,2,3,4,5' is motive phase, and 'a,b,c' is corrective phase. Every wave can be subdivided to smaller wave, the image below will illustrate the cycle:

The wave degree can be subdevided into: grand cycle, supercyle, cycle, primary, intermediate, minor, minute, minuette.

Next post will introduce some basic rules of each wave types

Demark pivot point, support and resistance level

Another way to identify the support and resistance you can use Demark pivot points. It was created by the Tom Demark, he is one of the famous technical analyst, you can find many information about him on the internet.

Here is the formula: The value of X in the formula below depends on where the Close of the market is. If Close < Open then X = (H + (L * 2) + C) If Close > Open then X = ((H * 2) + L + C) If Close = Open then X = (H + L + (C * 2)) R1 = X / 2 - L PP = X / 4 (this is not an official DeMark number but merely a reference point based on the calculation of X) S1 = X / 2 - H

You can get the indicator in here: Demarkpivotpoint.mq4

Murrey math support and resistance level

Murrey Math basic support and resistance level: like the pivot point, it generates the essential support and resistance level.

+ 2/8ths = This market is too high and needs monitoring closely. + 1/8ths = OverBought (Too high on enthusiasm) Top 8/8ths = Upper end of the Octave (wants to stay in here) 7/8ths = Weak Fast Reverse Line 6/8ths = Pivot Reverse Line 5/8ths = Upper Trading Range (Comfortable trading in here) 4/8ths = 50% = hardest to break through (up or down) the 1st Time 3/8ths = Lower Trading Range (Comfortable trading in here) 2/8ths = Pivot Reverse Line 1/8ths = Weak Fast Reverse Line Zero/8ths = Lower End of Octave (wants to stay in here) - 1/8ths = Oversold (Too Low on enthusiasm) - 2/8ths = This market is too Low and needs monitoring closely.

The two Murrey strategies are recommended:

+ Buy at 1/8 close at 4/8 or Buy at 0/8 close at 2/8

+ Sell at 7/8 close at 4/8 or Sell at 8/8 close at 6/8

For detail strategy, you can refer this one: Murrey math rule.pdf

You can download the indicator for MT4 platform here: Murrey_Math_Line_X_eng.mq4

And find other versions in my forex indicators collections

Point and figure chart ( X O chart)

Intructions Point and figure chart is one of a popular chart was created by the japanese, don't like other chart, it solely calculate the price movement. The prices are showed on both axis. it has been described as one of the simplest systems for better determining solid entry and exit points in trading.

Calculation:

To display point and figure chart, you must specify the box unit, and mark X letter when the prices rise by the box size and mark O when the price fall by the box size

For example:  

I specify the box unit at 1 USD, the prices rise up from 10 to 15 USD, you mark X from 10 to 15, then prices fall down to 12, you mark O from 14 down to 12.

15 X

    14 X O

    13 X O

    12 X O

11 X

10 X

Some ways to use point and figure chart:

Source: http://www.investopedia.com