The Wave Theory Encyclopedia of Technical Analysis of Market Speculation

Wave form

So the implications of Elliott are very profound.

There are four basic rules for counting waves.

There are nine characteristics of waves

Wave grading

The labeling method of fluctuation principle

Magic Number Series

Wave theoryThe four basic characteristics of

Wave theoryA few basic points

Wave theoryflaws

Wave theoryWith Dow Jones Theory

Wave theoryAnd technical analysis

Wave theoryRelation to news value

Wave theorygist

Eliot believes that whether it is the fluctuation of stock or commodity prices, it is like the tides and waves of nature, one wave after another, over and over again, with a considerable degree of regularity, showing the characteristics of cyclical cycles, and any fluctuations are traced. Therefore, investors can predict the future trend of prices based on these regular fluctuations and implement them in buying and selling strategies.

1．Wave form

So, how to distinguish between the five rising waves and the three falling waves? Generally speaking, each of the eight waves has a different performance and characteristics:

The first wave: (1) Almost half of the first wave belongs to the first part of creating a bottom pattern. The first wave is the beginning of the cycle. Since the rise of this market appears in the rebound and reversal after the fall of the short market, the buyer's power is not strong, and the bears continue to have selling pressure. Therefore, when the second wave adjusts and falls back after the rise of the first wave, the range of its retracement is often very deep; (2) The other half of the first wave appears after the long-term consolidation is completed. In this type of first wave, the market has risen more sharply. Experience shows that the rise of the first wave is usually the shortest of the five waves.

The second wave: This wave is a falling wave, because market participants mistakenly believe that the bear market has not ended, the adjustment of the decline is quite large, almost eating the rise of the first wave. When the market falls to the bottom in this wave (the starting point of the first wave), the market appears reluctant to sell, the selling pressure gradually collapses, and the volume gradually narrows, the second wave adjustment will come to an end. In this wave, the steering pattern in the chart often appears, such as head bottom, double bottom, etc.

The third wave: The third wave of the rally is often the largest and most explosive rising wave. The duration and amplitude of this market are often the longest. Market investors' confidence is restored, and the volume of transactions rises sharply. There are often breakthrough signals in traditional charts, such as rift jumps, etc. This market trend is very intense. Some graphical checkpoints are easily broken, especially when breaking through the high point of the first wave. It is the strongest buying signal. Due to the intense rise of the third wave, the phenomenon of "extended waves" often occurs.

Wave 4: Wave 4 is an adjustment wave after a sharp rise in the market, usually in a more complex form, often with a "tilted triangle" trend, but the bottom of the fourth wave will not be lower than the top of the first wave.

The fifth wave: in the stock market, the fifth wave of the rally is usually smaller than the third wave, and often fails. In the fifth wave, the second and third types of stocks are usually the dominant forces in the market, and their gains are often greater than those of the first type of stocks (blue-chip stocks, large stocks), that is, investors often say "chickens and dogs rise to the sky". This period of market sentiment is quite optimistic.

The first wave A: In the A wave, most market investors believe that the rising market has not yet reversed, and this is only a temporary reversal phenomenon. In fact, the decline of the A wave usually has warning signs in the fifth wave, such as the divergence between the volume and the price trend or the divergence of technical indicators. However, due to the fact that the market is still optimistic at this time, the A wave sometimes appears to adjust the trend or run in the "Z" pattern.

The performance of the B wave is often that the trading volume is not large, generally speaking, it is the escape line of the bulls. However, because it is a period of rising market, it is easy for investors to mistake it for another wave of rising market, forming a "long trap", and many people are trapped in this period.

Wave C: is a more destructive downward wave, with a stronger decline, a larger decline, a longer duration, and a comprehensive decline.

From the above,Wave theoryIt seems to be quite simple and easy to use. In fact, because each of its complete process of rising/falling contains an eight-wave cycle, there are small cycles in the large cycle, and smaller cycles in the small cycle, that is, there are small waves in the big wave, and there are small waves in the small wave. Therefore, the number of waves becomes quite complicated and difficult to grasp. Coupled with the frequent changes and complex patterns such as extended waves in the push-up and adjustment waves, the accurate division of waves is more difficult to define. These two points constituteWave theoryThe greatest difficulty in practical application.

2. The ratio between waves

Wave theoryThe rise and fall of the stock market are calculated using the golden ratio and mysterious numbers. An upswing can be the last high1．618, another high point and then multiplied by1．618, and so on.

In addition, the same is true for falling waves. Generally, the most common rate of return is 0.236 (0.382 × 0.618), 0.382, 0.5, 0.618, and so on.

5．Wave theoryflaws

（1）Wave theoryThe family's views on the phenomenon are not uniform. eachWave theoryFamilies, including Eliot himself, are often troubled by the question of whether one wave has been completed and another has begun. Sometimes A looks at the first wave, and B looks at the second. The slightest difference is a thousand miles lost. The consequences of reading it wrong can be very serious. An uncertain theory is used in the extremely risky stock market, and the operation error is enough to cause heavy losses.

(2) Even what is considered a complete wave is not clearly defined. The vast majority of the ups and downs in the stock market do not appear according to the mechanical pattern of five ups and three downs. ButWave theoryThe family explained that some ups and downs should not be counted into the waves. Wave Count is completely arbitrary and subjective.

（3）Wave theoryThere are so-called extension waves, and sometimes five waves can stretch into nine waves. But when or under what criteria can waves stretch? Eliot didn't say it explicitly, making the matter of counting waves a separate inspiration and thinking for himself.

（4）Wave theoryThere are waves in the wave, which can be extended indefinitely, that is, when the market goes up, it can rise indefinitely. It is all in the rising wave. A giant wave can last for a hundred years. A falling wave can also fall without a trace. It is still a falling wave. As long as the rising trend is not over, it is still a rising wave, and the falling trend is still a falling wave. What is the use of such a theory? It is very suspicious to be able to speculate on the running time of the top and bottom of the wave, which is equivalent to pure speculation.

(5) Eliot'sWave theoryIt is a set of subjective analysis tools without objective criteria. Markets operate under the influence of emotions rather than mechanically.Wave theoryApplying it to the ever-changing stock market can be very dangerous, and the opportunity for error is greater than anything else.

（6）Wave theoryIt cannot be applied to the selection of individual stocks.

The implications of Elliott band theory are profound.

English: Band theory

Using the Dow Jones Industrial Average (DJIA) as a research tool, Ralph N. Elliott, an American securities analyst, found that the constantly changing structural patterns of stock prices reflect the beauty of natural harmony. Based on this finding, he proposed a set of related market analysis theories, refining 13 patterns (Patterns) or waves (Waves) in the market. These patterns appear repeatedly in the market, but the time interval and magnitude of the occurrence are not necessarily reproducible. Later, he found that these structural patterns can be connected to form a larger pattern of the same pattern. In this way, a series of authoritative deductive laws are proposed to explain the behavior of the market, with particular emphasis on the predictive value of the volatility principle. This is the famous Elliott band theory, also known asWave theory。

Wave theory

The fluctuation of stock prices is very similar to the tidal phenomenon in nature. In a long market situation, every high price will be the bottom price of the next wave, and in a short market situation, every bottom price will be the sky-high price of the next wave. If investors can judge the situation and grasp the general trend of stock price fluctuations, they don't have to rush in and out around the small fluctuations in stock prices, but go long or short all the way with the general trend, so that they can not only seize the favorable opportunity to make big money, but also avoid the risk of accidents and stop losses in time. Eliot'sWave theoryIt provides investors with an effective tool for judging the general trend of stock price fluctuations.

RaLPH Nelaon Elliot (1871-1948) wasWave theoryThe founder of, he was once a professional accountant, specializing in restaurants and railroads. Due to a serious illness in middle age, he retired in 1927 and lived in California for a long time to recuperate. During his recovery, he developed his own stock priceWave theoryObviously, Eliot'sWave theoryIt is influenced by Dow's theory, and has many similarities. Dow's theory mainly gives a more perfect qualitative explanation for the development trend of the stock market, while Eliot puts forward unique insights in quantitative analysis.

Eliot's extensive stock market theory papers were mainly published in 1939, and two years before Eliot's death in 1946, Eliot explicitly wroteWave theory"Natre's lsw-The Secnt of the Universe". The title of the book sounds exaggerated. This is because Eliot believes that his theory of the stock market is part of the law of nature that governs all human activities. Let's ignore this statement for the time being and focus on his study of the laws of the stock market.

Many have engaged inWave theoryInvestors who have studied and put it into practice have feltWave theoryDifficult to understand, even daunting.Wave theoryThe basic principle is actually very simple, and readers will soon find thatWave theoryMany of the points covered. It looks familiar becauseWave theoryMany of the architectures are quite consistent with the principles of Dow Theory and traditional graph techniques. However,Wave theoryIt has surpassed traditional graph analysis techniques and can provide a comprehensive analysis perspective for market fluctuations, explaining the reasons and timing of the development of specific graph patterns, as well as the significance of the graph itself.Wave theoryIt can also assist market analysts in identifying the location of market cycles.

It has been said that most technical analysis is essentially trend-by-trend analysis. Dow Theory, for all its merits, is confirmed only after the trend is formed.Wave theoryIt can further provide early warning signals to the head and bottom, and can be confirmed by more traditional analytical methods. In the following sections, we will highlightWave theoryThe similarities between the two and the more well-known graph analysis.

There are four basic rules for counting waves.

Investors should be aware that Elliott'sWave theoryThe key to it mainly includes three parts. First, it isWave formSecond, as the proportional relationship between waves; Third, as the time interval between waves. And among the three, the shape of the wave is the most important.

Wave form, is EliotWave theoryTherefore, the accuracy of counting waves depends on the successful applicationWave theoryIt is crucial to grasp the timing of investment. There are only two basic rules for counting waves. If investors can stick to these two basic rules for counting waves in normal use, it can be said that half of the success has been achieved.

Two basic rules for counting waves: First, the third wave (the third push) is never the shortest of the three driving waves (the first, third, and fifth waves). In the actual movement of stock prices, the third wave is usually the most explosive wave and often becomes the longest wave. Second, the bottom of the fourth wave cannot be lower than the top of the first wave.

In addition to the above two iron laws when counting waves, there are two supplementary rules, which are not unbreakable iron laws. They are mainly to help investors better identify wave patterns and assist in the correct counting of waves.

Supplementary rule 1: Alternate rule. If the second wave appears in a simple form during the entire wave cycle, the fourth wave will mostly appear in a more complex form. In terms of nature, the second and fourth waves are both adjustment waves that walk against the current, and there are many seed types of adjustment waves. This supplementary rule can better help investors analyze and speculate on the future development and changes of market prices, so as to seize the opportunity to enter and exit.

Supplementary Rule 2: The stock market enters the adjustment period after a period of increase, especially when the adjustment wave belongs to the fourth wave. Most of them will be completed in the fourth wave of the lower level. Usually, it will end near the end. This supplementary rule mainly provides investors with the end point of adjustment, so that investors understand that when the adjustment is approaching the end, they should pay attention to the strategy of going long and short. Don't make investors make big mistakes in direction and create an irreversible situation.

There are nine characteristics of waves

Wave theoryIn the specific application, it is often difficult to distinguish the market conditions and find several wave counting methods that can be established at the same time. Therefore, it is necessary for investors to understand the characteristics of each wave.

The first wave, after the start of the entire wave cycle, most investors in the general market do not immediately realize that the ascending wave has begun. Therefore, in the actual trend, more than half of the first wave is part of the bottom-building pattern. Since the exit of the first wave generally occurs at the end of the short market, the short atmosphere in the market and the methods used to bear market operation have not changed, so the downward adjustment of the second wave following the first wave belonging to the bottom-building category is usually larger.

The second wave, as mentioned above, usually adjusts more widely in the actual trend, and it also has greater lethality, mainly because market participants often mistakenly believe that the bear market has not ended. The second wave is characterized by a gradual contraction of trading volume and a gradual narrowing of volatility, reflecting the gradual exhaustion of selling pressure, and the emergence of steering patterns in traditional graphics, such as the common head and shoulders, double bottoms, etc.

The third wave, the third wave, in most trends, belongs to a big wave in the main rising stage, so the third wave is usually the most explosive wave. Its main characteristics are: the running time of the third wave is usually the longest wave in the entire cycle, and its rising space and amplitude are often the largest; the running track of the third wave, most of which will develop into a rising and rising wave; in terms of volume, the volume is sharply enlarged, reflecting the potential for growth; in the graph, it often breaks up with an unstoppable gap, giving people a strong signal of breaking up.

Fourth wave, from the perspective of the structure of the shape, the fourth wave often runs in a triangular adjustment pattern. The end point of the fourth wave is generally difficult to predict. At the same time, investors should keep in mind that the bottom of the fourth wave cannot be lower than the top of the first wave.

The fifth wave, in the stock market, the fifth wave is one of the three major driving waves, but its gains are in most cases smaller than the third wave. The fifth wave is characterized by a relatively high market sentiment, which tends to flood the entire market with optimism. Judging from the shape and magnitude of its completion, it often ends in failure. In the operation of the fifth rising wave, the second and third liners will suddenly rise, and often the increase will be extremely considerable.

A wave, in an upward cycle, the adjustment of A wave is closely followed by the fifth wave, so most people in the market will think that the market trend has not reversed, unguarded, and only see it as a short-term correction. The adjustment pattern of A wave usually appears in two forms, the flat form and the trigram form, and it is often exchanged with B wave in a cross form.

The rise of B wave and B wave is often seen as unrequited love from many parties, and the rise is more emotional. This is mainly because most people in the market have not yet woken up from the bull market, thinking that the last rise has not yet ended. Bull traps often appear on the chart. From the perspective of transaction volume, transactions are sparse, and there is a clear deviation in price and volume. The increase in volume can no longer be helped.

The C wave, followed by the B wave and then the C wave, because the completion of the B wave made many market players wake up, a round of bullish market has ended, and the hope of continuing to rise has been completely dashed. Therefore, the overall market has begun to decline, and by nature, its destructive power is strong.

Wave grading

EliotWave theoryOne of the basic tenets in is that "the length of time does not changeWave form, because the market still evolves according to its basic pattern. Waves can lengthen or shorten as they run, but their fundamental pattern remains unchanged. "According to the above theory, the basic pattern of a super-cyclic wave, compared with a very short-term wave (such as the time-sharing price trend), will follow a certain pattern. The methods of analysis are also similar. The difference is that the number of wave stages involved is different.

In Elliott'sWave theoryHe divided the wave series in the stock market movement into nine levels, and from the data he obtained at that time, the smallest to largest waves were given different names. However, the names are not actually important for the work of the wave analyst. Generally speaking, a super-cyclic wave can contain movements over several years or even decades. As for microwaves and the finest waves, they are short-term waves and need to be analyzed using hourly charts.

From the above discussion, we can draw a conclusion about the wave division of the stock market.

1. The movement of stock prices is not simply a straight line, but rather changes like waves.

2. Waves that are related to the direction of travel of a push wave or a major trend can be subdivided into five smaller waves, and a correction wave or a wave that is opposite to the direction of travel of a major trend can be subdivided into three smaller waves.

3. When the eight movements of a complete stock market form a cycle (five rises and three falls), that cycle becomes part of a larger stock market cycle.

4. The shape of a wave may become expansive or contractionary, but its basic form does not change over time.