overview

Question 1

What is Elliott Wave Theory?

Answer 1

Elliott Wave Theory posits that stock market movements can be predicted by identifying repetitive wave patterns

Named after Ralph Nelson Elliott, who published his theory in 1938.

Question 2

How many waves are involved in a motive wave according to Elliott Wave Theory?

Answer 2

A motive wave consists of 5 waves

Waves are labeled as 1, 2, 3, 4, and 5.

Question 3

What are corrective waves in Elliott Wave Theory?

Answer 3

Corrective waves consist of 3 waves

Labeled as a, b, and c.

Question 4

What is the basic structure of Elliott Waves?

Answer 4

Movement in the direction of the trend unfolds in 5 waves, while corrections occur in 3 waves.

Question 5

What analogy is used to describe the relationship between smaller and larger Elliott Waves?

Answer 5

Elliott Waves are likened to a piece of broccoli, where smaller pieces resemble the larger structure.

Question 6

What are the impulsive waves in Elliott Wave Theory?

Answer 6

Waves 1, 3, and 5 are impulsive waves; waves 2 and 4 are corrective waves.

Question 7

How many degrees of waves does Elliott acknowledge?

Answer 7

Elliott acknowledges 9 degrees of waves.

Question 8

True or False: In today’s market, trends must always occur in 5 waves.

Answer 8

False

Trends can unfold in 3 waves as well.

Question 9

What is the Fibonacci Summation series?

Answer 9

The series starts with 0 and 1, with each subsequent number being the sum of the two preceding numbers.

Question 10

What does the Golden Ratio represent in relation to Fibonacci numbers?

Answer 10

The Golden Ratio (1.618) is derived by dividing a Fibonacci number by another previous Fibonacci number.

Question 11

Fill in the blank: Fibonacci Retracement refers to a market correction that is expected to end at areas of _______.

Answer 11

[key Fibonacci levels].

Question 12

How can Fibonacci ratios be useful in Elliott Wave Theory?

Answer 12

Fibonacci ratios help measure the target of a wave’s move within an Elliott Wave structure.

Question 13

What is the definition of a motive wave?

Answer 13

A motive wave is traditionally defined as a 5 wave move in the same direction as the larger trend.

Question 14

What is an impulse wave in Elliott Wave Theory?

Answer 14

An impulse wave subdivides into 5 smaller waves.

Question 15

What characterizes a leading diagonal in Elliott Wave Theory?

Answer 15

It appears as a subdivision of wave 1 in an impulse or wave A in a zigzag.

Question 16

What is the subdivision format of an ending diagonal?

Answer 16

Ending diagonals can be either 3-3-3-3-3 or 5-3-5-3-5.

Question 17

Fill in the blank: The structure of waves in a motive sequence can be _______.

Answer 17

[corrective].

Question 18

What is wave 1 characterized by in Elliott Wave Theory?

Answer 18

Wave 1 is often not obvious at its inception and is typically accompanied by negative fundamental news.

Question 19

What role does sentiment play in the identification of wave 1?

Answer 19

Sentiment is usually bearish when wave 1 begins.

Question 20

What is wave one in Elliott Wave Theory characterized by?

Answer 20

Wave one is rarely obvious at its inception, with negative fundamental news, bearish sentiment, and low technical analyst alerts.

Volume may increase slightly, but not significantly.

Question 21

What is the main function of wave two in Elliott Wave Theory?

Answer 21

Wave two corrects wave one but cannot extend beyond the starting point of wave one.

Prices usually do not retrace more than 61.8% of wave one gains.

Question 22

What typically happens during wave three in Elliott Wave Theory?

Answer 22

Wave three is usually the largest and most powerful wave, characterized by positive news and rising prices.

Wave three often extends wave one by a ratio of 1.618:1.

Question 23

What are the characteristics of wave four in Elliott Wave Theory?

Answer 23

Wave four is typically corrective, retracing less than 38.2% of wave three and often meandering sideways.

Volume is well below that of wave three.

Question 24

What signifies wave five in Elliott Wave Theory?

Answer 24

Wave five is the final leg in the direction of the dominant trend, marked by universally positive news and lower volume than wave three.

Many average investors tend to buy in during this phase.

Question 25

What is the nature of wave A in a bear market?

Answer 25

Wave A is usually harder to identify, with the fundamental news still appearing positive, and is often seen as a correction in a bull market. ## Footnote Increased volume and rising implied volatility may accompany wave A.

Question 26

What occurs during wave B in Elliott Wave Theory?

Answer 26

Prices reverse higher, which many interpret as a resumption of the bull market, although volume is lower than in wave A. ## Footnote Fundamentals may no longer be improving by this point.

Question 27

What characterizes wave C in a bear market?

Answer 27

Wave C moves impulsively lower in five waves, with volume increasing as the realization of a bear market sets in. ## Footnote Wave C is typically at least as large as wave A.

Question 28

Define corrective waves in Elliott Wave Theory.

Answer 28

Corrective waves move against the trend of one greater degree and have more variety and less clearly identifiable patterns compared to impulse waves. ## Footnote Corrective waves typically move in three waves, never in five.

Question 29

List the five types of corrective patterns.

Answer 29

* Zigzag (5-3-5) * Flat (3-3-5) * Triangle (3-3-3-3-3) * Double three * Triple three

Question 30

What is the structure of a Zigzag in Elliott Wave Theory?

Answer 30

A Zigzag is a corrective 3-wave structure labelled as ABC, with subdivision of wave A and C in 5 waves, and wave B can be any corrective structure. ## Footnote It follows a 5-3-5 structure.

Question 31

What distinguishes a Flat correction from a Zigzag?

Answer 31

A Flat is a 3-wave corrective move labelled as ABC, with wave A and B subdivided in 3 waves, whereas Zigzag has a 5-3-5 structure. ## Footnote There are three types of Flats: Regular, Irregular/Expanded, and Running Flats.

Question 32

What are the characteristics of Regular Flats?

Answer 32

A Regular Flat is a corrective 3-wave move labelled as ABC, with wave A and B in 3 waves and wave C in 5 waves impulse/diagonal. ## Footnote Wave C generally terminates slightly beyond the end of wave A.

Question 33

What defines an Expanded Flat?

Answer 33

An Expanded Flat is a corrective 3-wave move where wave B terminates beyond the starting level of wave A, and wave C ends substantially beyond the ending level of wave A. ## Footnote Wave C needs to show momentum divergence.

Question 34

What is a Running Flat?

Answer 34

A Running Flat is a corrective 3-wave move where wave B terminates beyond the starting level of wave A, but wave C fails to travel the full distance of wave A. ## Footnote Wave C also requires momentum divergence.

Question 35

Describe a triangle in Elliott Wave Theory.

Answer 35

A triangle is a sideways movement associated with decreasing volume and volatility, consisting of 5 sides subdivided into 3 waves each (3-3-3-3-3). ## Footnote There are 4 types of triangles: Ascending, Descending, Contracting, and Expanding.

Question 36

What is a Double Three in Elliott Wave Theory?

Answer 36

A Double Three is a sideways combination of two corrective patterns labelled as WXY, with wave W and wave Y having subdivisions that can include zigzag, flat, or double three of smaller degree. ## Footnote Wave X can be any corrective structure.

Question 37

What is a Triple Three in Elliott Wave Theory?

Answer 37

A Triple Three is a combination of three corrective structures labelled as WXYXZ, with subdivisions similar to Double Three but extended to three patterns. ## Footnote Wave X can be any corrective structure.