The Elliott Wave Principle: An Inside Look

It was early 1900 and a man named Ralph Nelson Elliott was forced into retirement due to a series of illnesses contracted while living in Central America. Mr. Elliott needed something new in his life and began studying the behavior of the stock market. He went over weekly, daily and hourly charts that he made himself. He started to notice that markets follow patterns and that those patterns repeat over and over again. Mr. Ralph Elliott relates those patterns and stock behavior to the Nature’s Law or the Secret of the Universe. As we all know, we live in a universe where not everything is as simple as it looks. We are related to one another but every individual life-form has its own rhythm, each part of the universe in its own little world making its own decision and following its own destiny .

As humans we are part of the whole universe and consequently being the smartest part we take decision that rule the universe or better said that rules the planet of Earth .Everything in this universe has a rule and it’s been created in a so called divine way. I believe  Humans are the only one to discovery those divine rules of creations and seeing how Flowers, Hurricanes , Human body all follow  ratios , which was not designed by us , was something superior .Mr. Elliot put all those concepts together and develop The Elliott Wave Principle. This powerful Theory can predict what the market will do next and identify its turning points. How we can say all this is true? As mentioned before the market follows patterns and Elliott discovered the patterns move in two ways, impulsively in a form of five waves or correctively in a form of three waves. Mr. Elliott discovered also that there are multiple degrees of trend present in any market from the smallest tick epochal degrees. Each cycle is related to the other creating sequences that are fractal in their nature. Elliott realized if he could identify which degree the market was currently he could predict what direction and to what degree the next series of price patterns. He was starting to develop a forecasting method.

The markets were developed by humans where every investor will make decisions based on different opinions. These decisions will move the market and create “waves” of patterned price action . The investor are humans and also part of the Universe consequently they are ruled by divine forces, many of them do not even understand this simple concept , and make the decisions just as a machine in need of making decisions . Elliott understood that entire concept and in my opinion that was his bigger discovery understanding the Universe rules. Those waves are counted following the simple Elliot wave principle rules where a impulse is five waves where wave 2 cannot pass the beginning of wave 1 , wave 4 cannot print the end of wave 1 and wave 3 can not the shortest of the 3 impulse waves, if all three rules can be applied then we have a impulse move , if one of them is broke then we have a corrective move. Following those rules we are going to create our counts and develop ourtrading strategies. It looks simple right now but understanding the Universal rules and Human Nature is the motor behind the Elliott wave Principle.