Elliott Wave for Beginners | ULTIMATE In-Depth Guide!

[Music] hi this is rob roy of l.a wave options in this video i'm going to explain the core concepts of ellie wave theory to you it doesn't matter if you're brand new to elliott wave we're going to use lots of visualizations and examples to make sure this is the perfect way for you to get started i know there's a lot of ellie wave material out there but when i looked into it i realized that the vast majority of it just really focuses on that five wave impulse pattern without really going into the concepts behind the theory itself so in this video i'll do just that i'll go into more detail on the core of ellie wave theory to help you understand it better it's a lengthy video with a ton of content but i promise you the quality is great if you haven't got time to watch it all now just make sure you subscribe to our channel and you can catch us later on before we get started should let you know that the information from this tutorial came from the lessons of our early wave core class on our website register for free and do the first module the link is in the description enjoy the content welcome to the alleyway theory overview elegy wave theory is a method of analyzing cycles in the stock market it's probably the most all-encompassing sophisticated form of technical analysis ever developed now you don't have to know all the details but we're going to cover what we feel is important to be a successful trader it's based upon identifying patterns in the stock market to identify where the cycle may repeat by understanding the patterns and where the market is in the current cycle alleyway theory can be used to forecast future market movements type of elliott wave price movement motive and corrective patterns in ellie wave theory price movements are categorized relative to the larger trend as you can see in the chart there's the long-term trend clearly to the upside the motive is when prices are moving in the direction of the larger trend and the corrective moves are when the prices are moving counter or against the larger trend so in the example again you can see the motives are in the direction of the upward movement the correctives are down another motive to the upside and those shows you that the two motives are moving in the direction of the overall trend which is up the corrective is moving in the opposite direction or down in that instance remember bullish and bearish markets have direction of motive and corrective movements that are opposite in other words when you have an upward trend the motive moves are to the upside but the corrective move is down however when you have a down trending market meaning that the motive moves or to the downside the corrective move is actually to the upside i found that quite often people get stuck with the word correction or corrective as an always downward move but not an alleyway in alleyway corrective moves are basically just a move against the larger trend mode of waves moving with the larger trend on the screen here you can see the impulse move which is one of the motive patterns and that's the traditional five wave pattern that most people see it's also the one that's most talked about but there's also a bit more of a complex pattern known as a diagonal and you can see it's kind of like that pennant formation and there's a lot going on and we're going to get into more detail on what's happening with these waves within the waves a little bit later on in the presentation corrective waves moving against the larger trend there are three primary corrective patterns there's a zigzag flat and a triangle zigzag is a three wave directional pattern as you can see the a b and c the flat is also a three wave pattern but basically it's a sideways or non-directional pattern with support and resistance levels but you kind of just move it in a sideways manner the triangle is a breakout formation consolidation so the move is consolidating from a larger area down to a smaller point yielding the potential breakout from the triangle but all three are known as corrective patterns basic cycle structure an idealized eight wave structure the combination of a motive wave and a corrective wave is the general structure of the complete elite wave cycle so here we have the motive move to the upside followed by a corrective move to the downside and in this example the motive move is that traditional five wave impulse pattern that's shown so often and the corrective pattern is a three wave zigzag which is also shown quite often elliot noticed that the market repeated this 5-3 structure again and again and this became the foundation of his theory understanding degrees waves within waves the term degrees relates to the fractal nature of ellie wave patterns which means if you take any single part of a pattern and zoom in on it you'll find that a pattern can also exist at a lower level or lower degree let's take a simple pattern this is a common five wave impulse pattern let's assume that the time it took to occur was one year so from what will be labeled as a zero point to the end of the wave five is a year in time so within those waves lots of things could be going on perhaps there's a five wave impulse pattern within the wave one a three wave corrective pattern in the two another five wave pattern in the wave three a little bit longer taking more time little stronger wave three another corrective zigzag in the wave four and then finishing off with another wave five pattern to the upside within the wave five so waves within waves patterns within patterns now these patterns are described as being of different degrees the larger pattern that took a whole year would be a primary degree impulse pattern while the last leg of that pattern that took only weeks to months would be an intermediate degree impulse pattern this concept of degrees is one of the reasons why people can be confused about ellie wave cows people can be focused on different degrees and therefore disagree about the current wave count elliot actually categorized the degrees of wave patterns starting with the biggest a grand super cycle which can take centuries to form then there's a cycle which takes decades multiple decades 40 to 70 years cycle which is one probably talked about the most often one to several years a primary which can be a few months two years in the making intermediate which takes weeks to months a minor pattern which is weeks minute which is days minuet down to hours and subminuet which is minutes if you've heard me talk about ellie wave at all in the past i've talked about the fact that the patterns work in any time frame and this category of degrees shows that you just break it down smaller and smaller and smaller waves within waves patterns within patterns you can go all the way down to and i have a three minute futures chart on all the time and you consistently see the same elewave patterns that we're looking at and sending alerts out on on a daily chart mono versus complex waves how the waves subdivide mono waves move from their starting point which is denoted by zero mention that earlier directly to the endpoint i really like to see it when it moves in kind of a 45 degree angle as illustrated here on your screen a complex wave contains waves of a lesser degree and therefore doesn't necessarily move directly in this case you can see there's a zigzag pattern corrective zigzag where you had a move a counter move or corrective move and then another move in the direction from zero to one so the zigzag within that move from zero to one makes it a complex wave ellie wave in fibonacci the golden interval quite often termed the golden ratio first of all we're going to talk about the mathematics of fibonacci then we'll discuss just how common mathematics is in the natural world and why it is therefore relevant to the financial markets in the fibonacci sequence we talk about something discovered by fibonacci who is a 13th century italian mathematician so we're going way back in time but elliott was fascinated with this mathematics from fibonacci fibonacci observed a series or sequence of numbers which is a continuous sum of the previous two values so we start with 0 then go to 1 1 2 3 5 8 etc so as it moves on out we'll talk about the fact that this summation series is adding the previous two numbers to give you the next zero and one is one one and one is two one and two is three etc and that continues all the way up to infinity basically fibonacci discovered that the sequence of numbers is uniquely characterized by the consistent ratios that occur between each number in the series and the numbers that follow it if you look at this chart here you see a great illustration of that so over in the left hand column the vertical side looking down you see the 0 1 1 2 3 5 8 13 etc the same summation series that we just showed you on the previous slide now over to the right you see the ratio of that number to the number ahead so one is a hundred percent of one one is fifty percent of two so this percentage is the number to its left that percentage of the next number in this vertical line on the left hand column then on the third column over you see the ratio to two numbers ahead so 50 33 40 etc and then over in the right hand column you see the ratio to the number to three numbers ahead what's fascinating is if you look in the first hand column you start to see pretty quickly that we're right around that 61.8 percent ratio and when we get down to 89 it is 61.8 and it's there for the rest of the way up the series in the third column the ratio to two numbers ahead we're pretty close to the 38.2 fib level which we also hit at 89 and you can see moving forward from there regardless of the numbers in the summation series the ratio to the two numbers ahead is 38.2 and then over in the far column 23.6 is the number we're getting close to and again once we hit 89 we're right there at the 23.61 exactly all the way up continuing in the series so it's quite intriguing that these kind of mathematical ratios exist but what is the relevance to our discussion well the fact of the matter is that these ratios can be observed consistently throughout the natural world in all kinds of scenarios relating to people plants weather etc now as it says on the slide the fibonacci sequence always attracts people's attention because it's fascinating just how deeply the pattern repeats in nature we see it in human anatomy plain anatomy and as it says here breathing patterns fibonacci the mathematician famously studied the mathematics of rabbit breeding patterns among other things i have a real life example of the one here that says human anatomy where you see the picture of the hand my son was in a bad car accident i'll save you the glory details but basically is the bones of his hand was splintered like bamboo and when we were talking with the orthopedic surgeon he literally over his x-ray put this exact same picture here note what those numbers are moving from right to left 2 3 5 8 where again the summation series two and three is five three and five is eight and he showed this and basically what he was talking about is the relationship of the tip of the finger to the first knuckle first knuckle to the second knuckle second knuckle to the um primary ones the third that we talk about so often when we make a fist and then he kind of mentioned a little bit about the summation series and i said are you talking about fibonacci ratios and he goes you know fibonacci ratios and i said yeah and we started talking and me my son's sitting over there he's like um excuse me you know i'm still here uh because he was sitting there in in quite a lot of pain while we were having a fibonacci discussion but basically the orthopedic surgeon used these exact ratios to know where to put the pens and the plates in his hand to rebuild the bone structure in his hand it's fascinating looking at plant anatomy you can see in this example of a plant and basically it works with a tree as well where you have the overall plant or tree and then each branch is just a degree if you will of the larger pattern overall and in the right hand column you can see where we have the fibonacci number sequence here of the number of branches from the overall trunk the beginning of the plant or tree it's truly fascinating when you start looking at it fibonacci ratios are also notably plotted as a spiral that manifests throughout the natural world look at the depiction of this spiral you can see that we have these squares that are the fibonacci numbers five and five 8 by 8 13 by 13 21 by 21 and when you put those squares together to form the larger rectangle and then take a line and connect the corners of those squares you get the fibonacci spiral which shows up all over the place in nature and science the storm systems live in florida we're so used to seeing that swirl with the hurricanes that visit us quite often probably the most commonly talked about illustration of the fibonacci spiral is in the nautilus shell but it also exists in plane geometry if you just spend enough time to stop and stare at a plant you can see the patterns now at this point you might be thinking well this is all very interesting but what has it got to do with trading well let's summarize it succinctly given that fibonacci number series is so prevalent in the behaviors of the natural world many people believe that it is not unreasonable that we should also see this number in the way the human world behaves and one of the ways that we can measure human behavior is the buying selling in the stock market our emotions of hope greed fear and pain drive all the decisions we make around buying and selling when we plot this buying and selling as stock price charts we can often observe fibonacci ratios in the prices one thing to be aware of when it comes to fibonacci though is the topic can quickly become sidetracked into a discussion about esoterica whether you believe that there's some sort of a mathematical order to the universe or whether you think people see what they want to see and the phenomenon basically just becomes self-fulfilling that would be discussion for another time we could literally spend an entire series on fibonacci the important takeaway for this class is that fibonacci numbers and ratios are commonly observed in many places including and especially in the financial markets which is why elliott himself became so enamored with them therefore be aware and watch for them when using fibonacci with elliwave typically the following ratios are considered to be the most important note that the 23.6 one is not there 23.61 specifically that's because elliott found that not to be as strong of a point of support and resistance within the l e wave patterns that's what we're going to be using these fibonacci ratios for support and resistance guidelines price targets if you will or estimations of where the 3 the 5 etc may wind up but with the 23.61 percent just didn't feel like that was strong enough for it to actually count as a support resistance level or a corrective move to be put in one of the corrective patterns that's why it's not on the list applied fibonacci examples let's now look at some examples of how fibonacci relates to the price levels within ellie wave patterns in particular we'll be focusing on the concept of retracement and extension remember that these are only examples and each pattern has its own rules that we'll review in later sections fibonacci ratios used as retracement levels in this example we see how the range of one to three can be used to set a price range for the expected pullback in wave four so looking at the example here you see from the beginning of one up to three so again from zero to three we'll talk about that a lot uh in the world of fibonacci the move uh from the beginning of the motive or impulse depending on which it is from zero to three and then you look at those fibonacci ratios for the potential wave four retracement here note that the stock came down and hit that 38.2 percent level several times again illustrating the power of fibonacci ratios for support and resistance level ultimately the stock retraced to 44 which is squarely in the range expected between the fibonacci ratios of 38.2 percent and 61.8 percent so in this case we are using fibonacci to identify targets we expect the market to retrace to in this example we see how the range beginning from one to three can be used to project the target for five so again starting at the zero point the beginning of wave one through three you look at sixty one point eight percent start from there where the wave 4 ends and the 61.8 percent target gives you the expectation of where the wave 5 can go so in this example the move from 4 to 5 is moving 61.8 percent of the move from the zero point to the top of the wave 3. this is how we use fibonacci ratios to project extension levels as price targets for stocks la wave and time the duration of patterns elliott wave theory also provides targets for time frames over which the formation of various patterns or waves should elapse this is typically expressed as the length of a wave measured in time relative to the time taken for another wave to occur there are different time based rules or guidelines for each pattern these are typically less focused on but important to be aware of i use these as based on the conversation there of rules versus guidelines as general guidelines i haven't found personally for them to be focused or accurate enough i guess i should say to be considered pure rules but i do think they're helpful in using them as guidelines on when to set up the trade especially in the world of trading options where time matters you can use them as guidelines to figure out how far out in time to go to select your option months let's now look at a simple example how time relates to l wave patterns remember this is only an example to help you understand the concept and each pattern has its own rules a list of the rules is included as a resource elsewhere in this course in this example you can see that for impulse patterns wave 4 is not allowed to be more than twice the time taken for wave 3. so in this instance this is actually a rule so you can see the move from 2 to 3 there so that's 100 that's the move you double that and you can see in this case wave four did form in less than twice the time that it took to go from wave three from the two to the three so that gives you an understanding how the time rules typically work for ellie wave patterns ellie wave rules and guidelines defining waves and patterns so to help you understand the yellow wave rules or guidelines we've broken them down into categories you may not find anyone else who talks about them like this but i think it's useful to help you understand the patterns in general we're not going to speak about specific rules here we'll do that in the following sections as we break down each pattern and its specific rules in detail each elewave pattern has rules and guidelines defining how it should be identified and labeled rules are strict conditions that cannot be relaxed or ignored if a pattern breaks one of its rules it is invalid and must be re-analyzed for a different valid pattern i think this is extremely important when it comes to ellie wave and one of the greatest benefits that ellie wave has that you can be trading a current pattern and a rule is violated so that pattern becomes invalid but immediately ellie wave the mathematical algorithm looks to seek out okay if that pattern's invalid because the rule was broken then what is the pattern and so it immediately adjusts to give you the new pattern and i think adjustments are an extremely important part of being a successful trader nobody is right all the time no trading system is right all the time elewave is not right all the time but in my experience it is by far the fastest to when things aren't going maybe exactly as planned to adjust and based on early rules which is interesting if you have a failed pattern or one becomes invalid the new pattern that appears actually has a higher percentage chance of occurring guidelines are conditions commonly seen in patterns they are not hard fast requirements guidelines are very helpful in determining the optimal count when there are multiple accounts that could be correct so there are times when okay it could be doing this or could be doing that i think this slide here is extremely important because this is where a lot of the criticism comes from people that don't fully understand elliot way and when a pattern relabels or whatever they immediately jump to the conclusion i'll say yellow wave doesn't work no this is what the greatest benefit of elliott wave is is that it immediately changes if there is a pattern that's not working categorizing the rules and guidelines under general category we're describing high level characteristics of the pattern including segmentation and labeling price provides specific price relationships and relative measurements of the segments within the pattern the channel explains how to draw trend lines defining the pattern and how segments within the pattern should relate to the trend lines the degree describe how the pattern interacts with patterns of the next higher or lower degree gross price describe price relationships of segments taking account of price movements of lower degrees within the segments and time describe the relationship and measurements in time between various segments within the pattern welcome to this section on the impulse pattern most common five wave sequence the impulse pattern is a five wave sequence and as diagrammed on the left hand side is the most common elewave patterns what you normally see illustrated when someone is talking about ellie way as you learn throughout this course ellie wave goes far deeper than just this five wave pattern but if this was all it did it would still be extraordinarily helpful in the world of trading directionally the five wave impulse pattern moves in the direction of the larger trend and is labeled with the one two three four and five again what you're used to seeing but those waves subdivide into five three five three and five waves as well the impulse pattern can be bullish or bearish remember we talked about on the previous slide we're moving in the direction of a larger trend so in the case of a bullish impulse pattern we're moving to the upside in the case of a bearish impulse pattern we're simply moving to the downside with the same rules and guidelines that apply to the five waves applying to both patterns whether it be to the upside or the downside the diagonal pattern elias directional triangle formation as you can see from the graphic the diagonal pattern is a five wave sequence it moves within the channel lines that are drawn from one through three and two through four it's labeled as a one two three four and five it can be expanding or contracting it can be either leading or ending we'll go through each of these bullet points in more detail as we go through the course but something i'd like you to note at this point in time is although the patterns look similar there are some distinct differences with a diagonal pattern in noting the differences between an impulse pattern and a diagonal diagonals don't have mono waves you may have noted from the previous slide that we showed that the wave 1 2 3 4 and 5 are all drawn with jagged lines the internal waves are shown as zigzags to denote that they must be complex as with impulse patterns diagonals can be bullish or bearish here's the same type of pattern drawn to the bearish side it's still the one two three four and five but again each of the waves is complex on the way down just the same way it is on the way up to this section on the flat pattern a sideways corrective pattern although this is not necessarily my favorite ellie wave pattern to trade it's really important to understand how a flat works because it's part of the whole elliott wave trading system and you have connective patterns that may be between two directional moves so the flat pattern is a three-way sequence so abc the flat pattern generally moves sideways common ellie wave pattern can be regular irregular or running we're going to go through that in more detail and so that goes to the actual structure of the abc because what's on your screen now is basically showing all of the waves or segments at the same length but it doesn't have to be all in the same length labeling with that abc as is common with a flat or zigzag in the corrective world of elliott wave and it subdivides into three three five flats can be bullish or bearish well boy that sounds counterintuitive doesn't it because we just got done talking about how a flat is in general terms a sideways pattern so how can it be bullish or bearish well that's what i was explaining just a minute ago as well as how does the flat maybe act as a connector between two directional patterns which way is the a wave if the a wave is to the upside and then you have your corrective b and then your extended c then is considered a bullish flat if the a wave is to the downside and then you have a corrective upward b followed by a downward c that's actually considered a bearish flat so again the terminology can be maybe confusing at first blush but then when you understand we're really focusing on what's the direction of the impulse a in the overall flat pattern that's where the distinction of bullish or bearish comes from so let's talk about the different types of flat patterns the regular we talked about this just in the slide a minute ago that's the one that most people refer to as a flat where it's just a general sideways pattern with the a b and c segments all being virtually the same length as far as the price movement an irregular pattern is also sometimes referred to as expanded note that we have the b wave longer than the a wave and the c wave also longer than the a wave but the important thing that i want you to realize here is the terms irregular and expanded are actually interchangeable and then we have a running flat where we have the a moving to the upside we have a larger b so the b wave is larger than the a wave as far as price is concerned but then the c wave stops short of the a so when we're realizing that flats are basically in my viewpoint connective patterns between two likely directional moves it is important to understand what flat do we have is it a regular irregular or expanded or a running flat the zigzag pattern the most common three wave sequence and also by far my most favorite elewave pattern of all the zigzag pattern looks like this obviously it's a three wave sequence it typically moves against the direction of the larger trend as we said just in the intro it's the most common corrective pattern and that's an important distinction to make technically a zigzag is a corrective pattern that's why we said it typically moves against the direction of the larger trend i just wanted to set that distinction in the previous comment labeled as abc so there's your abc labeling and it subdivides into five three five as with the majority of lew wave directional patterns zigzags can be bullish or bearish as well so there's example to the upside the labeling of abc as we just talked about remember how the subdivisions work and to the very side i wanted to talk about this for a second you'll notice that when we see market downturns our trade alerts tend to focus quite often on a bearish zigzag rather than a full-fledged five-wave impulse pattern to the downside for a couple primary reasons we all know the market moves down faster than it moves to the upside and in addition you may or may not know this that when a downward pattern completes the rebound or the corrective move back to the upside can happen rather rapidly so the longer you're exposed to the downside i.e a five wave impulse pattern the more chance the market has to go against you and maybe take away some of your gains so you'll notice that when we send out our alerts in market downturns they're quite often tied to bearish zigzags rather than impulse patterns the triangle pattern consolidating the trend as you see from the graphic on the left hand side the triangle is a common five wave corrective sequence so remember it's one of the corrective patterns that includes flat zigzags and triangles generally moves sideways or consolidates and you can see that pattern is something that you're probably starting to get used to talk more about that in a second it moves within the channel so you have a set of two lines there that connect the highs and the lows it can be contracting or expanding the vast majority of the time we're going to be talking about contracting triangles expanding triangles do exist but they're really rare so we'll cover them but just briefly the labeling is done as a b c d and e as you know in a zigzag pattern is a corrective pattern as well as a flat they're labeled abc so we have a difference here in the triangle labeling it a b c d and e it subdivides or the corrective waves into three three three three three in other words you're not likely to find a five wave subdivision in any of the segments a b c d or e triangles can be bullish or bearish and in general therms you might say ah it doesn't really make much sense look at the two patterns basically you would say well the bullish pattern breaks to the upside and the bearish pattern breaks to the downside but look a little closer let's look at the graph on the left hand side you can see the dotted line that shows the entry into the triangle so both of them are showing a set of lower highs and higher lows but the entry matters so the entry on the left-hand side is coming from lower to higher up to the upper trend line then you go into the subdivisions on the a b c d and e in the graphic on the right the bearish triangle you can see that the dotted line shows that the entry into the mouth or the widest part of the triangle is to the downside there are different types of corrective triangles the first one is the symmetrical that's what we've shown on the previous couple of slides where you have a series of lower highs and higher lows so the mouth of the wedge is out to the left and as you move into the point of the wedge each of those segments gets smaller and smaller in price movement there's also an ascending triangle in an ascending triangle the highs are very similar so you can note that that upper trend line here is pretty horizontal and then we have the lower highs that we move up towards the point in that triangle if we have ascending triangles we're going to have descending triangles as well in this case the lower trend line is the one that's horizontal indicating that the lows are similar and then we have a set of lower highs as the upper trend line moves down towards that lower trend line to form the point just before the breakout occurs here's that expanding triangle that i mentioned it's pretty rare you see it's the exact opposite direction now the point is over on the left hand side of the triangle and the mouth of the triangle is actually on the right hand side for more lessons like this one and weekly ellie wave trade ideas enroll in trade finder the subscription is free and you'll receive access to the ellie wave core class plus regular live webinars with me sign up now take care everybody you

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Keywords: Elliott Wave, Elliott Wave Count, Elliott Wave Theory, Techical Analysis, Stock market, Crypto, Cryptocurrency, Bitcoin, Rob Roy, Futures, Options Trading, elliottwavetrader, elliott wave options, elliott waves tutorial, elliott wave counting, options trading strategies, stock market analysis, s&p technical analysis, elliott wave software

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Length: 36min 59sec (2219 seconds)

Published: Thu May 27 2021