This theory attempts to break down the fluctuations of the financial markets into a series of repetitive patterns, formed by a succession of "waves". However, overlap between wave 1 and 4 is not a condition and it may or may not happen, The subdivision of an ending diagonal is either 3-3-3-3-3 or 5-3-5-3-5, Double three: A combination of two corrective patterns above, Triple three: A combination of three corrective patterns above, Zigzag is a corrective 3 waves structure labelled as ABC, Subdivision of wave A and C is 5 waves, either impulse or diagonal, Wave B = 50%, 61.8%, 76.4% or 85.4% of wave A, Wave C = 61.8%, 100%, or 123.6% of wave A, If wave C = 161.8% of wave A, wave C can be a wave 3 of a 5 waves impulse. A. The underlying 5-3 pattern remains constant, though the time span of each wave may vary. After being forced into retirement due to an illness, Elliott needed something to occupy his time and began studying 75 years worth ofyearly, monthly, weekly, daily, and self-made hourly and 30-minute charts across various indexes. Still, some positive signs appear for those who are looking: volume should be lower during wave two than during wave one, prices usually do not retrace more than 61.8% (see Fibonacci section below) of the wave one gains, and prices should fall in a three wave pattern, Wave 3: In Elliott Wave Theory, wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). Although the terms "impulse" and "corrective" clearly define the direction a wave is traveling, they do not provide any real measure of the size or strength of the wave. Elliott's theory somewhat resembles the Dow theory in that both recognize that stock prices move in waves. Elliott Wave Theory provides analysts with the tools they need to identify market trends and leverage this knowledge as part of smart investing. Elliott Wave Theory: Rules, Guidelines and Basic Structures It is subjective, meaning not all traders interpret the theory the same way or agree that it is a successful trading strategy. To use the theory in everyday trading, a trader might identify an upward-trending impulse wave, go long and then sell or short the position as the pattern completes five waves and a reversal is imminent. The oscillator provides a computerized method of predicting future price direction based on the difference between a five-period and 34-period moving average.