Wave function and Elliott Wave
Each wave serves one of two the functions: action or reaction. More specifically, a wave can either advance the cause of the wave by a higher degree, or interrupt it. The function of a wave is determined by its relative direction. A shareholder or trend wave is a wave that tends to even direction as the wave of a greater degree of which it is a part. A reactionary or against the trend wave is a wave that tends in the direction opposite to that of the wave of a greater degree of which it is a part. Shareholder airwaves are labeled with odd numbers and letters (for example, 1, 3, 5, a and c in Figure 1-2). Reaction waves are labeled with even numbers and letters (for example, 2, 4, and b in Figure 1-2).
All reactionary waves develop in corrective mode. If all the shareholder waves developed in motor mode, then there would be no need for different terms. Indeed, most of the shareholder waves are subdivided into five waves. However, as the following sections reveal, some shareholder waves develop in corrective mode, i.e. they are subdivided into Three waves or a variation thereof. Detailed knowledge of pattern construction is necessary to understand the distinction between shareholder function and pattern which, in the underlying model of Figures 1-1 to 1-4, are indistinct. An in-depth understanding of the forms detailed later in this chapter will explain why we introduced these terms into the Elliott Wave Lexicon.
Variations on the basic theme
The wave principle would be simple to apply if the essential concept described above was the complete description of market behavior. Fortunately or unfortunately, the real world is not that simple. While an idea such as market cyclicity or human experience involves precise repetition, the concept of waves allows for immense variability, which is in fact abundantly highlighted. The rest of this chapter completes the description of actual market behavior. This is what Elliott wanted to describe, and he managed to do it.
There are a number of specific variations on the underlying theme, which Elliott has meticulously described and illustrated. He also noted the important fact that each model has identifiable requirements as good as trends. From these observations, he was able to formulate many rules and guidelines for correct identification of the waves. Thorough knowledge of these details is necessary to understand what the market can do, and at least as important, what it does not do.
Chapters 2 and 4 present a number of guidelines for correct interpretation of waves. If you do do not wish to become a market analyst or fear that you will get bogged down in technical details, read the next paragraph, then go to chapter 3. A brief reading of the very condensed summary below should guarantee that you will do so at least in the following chapters necessary aspects of the wave principle.
Summary of additional technical aspects
The additional technical aspects of waves, which are discussed in detail here in Chapter 2, are set out below as briefly as possible: Most motor waves take the form of a pulse, that is, that is, a five-wave model like those illustrated in Figures 1-1. at 1-4, in which sub-wave 4 does not overlap sub-wave 1 and sub-wave 3 is not the shortest sub-wave. The pulses are generally linked by parallel lines. A driving wave in a pulse, i.e. 1, 3 or 5, is generally extensive, i.e. much longer than the other two. There is a variation of a rare pattern called diagonal, which is a wedge-shaped pattern that appears at the beginning (wave 1 or A) or at the end (wave 5 or C) of a larger wave. Corrective waves have many variations. The main ones are appointed zigzag (which is the one shown in Figures 1-2, 1-3 and 1-4), dish and Triangle (whose labels include D and E). These three simple corrective models can be linked to form more complex corrections (whose components are labeled W, X, Y and Z). In pulses, waves 2 and 4 almost always alternate in form, where one correction is usually from the zigzag family and the other does not. Each wave exhibits a characteristic volume behavior and a “personality” in terms of dynamism and investor sentiment.
General readers can now move on to Chapter 3. For those who want to know more, we will focus on the specifics of the waveform.