Wave theoryYesTechnical analysisMaster r. EElliotA price trend analysis tool (r. E. Elliot) developed as a fully observed set of patterns that can be used to analyse stock market indices, price trends and the most widely used and most difficult to understand and understand in world stock market analysis。
According to elliott, the volatility of both stocks and commodity prices, like the tides and waves of nature, followed by waves and waves, with a considerable degree of regularity, characterized by cycles and a pattern of any volatility. Therefore, investors can predict future price trends based on these regular fluctuations and apply them in terms of buying and selling strategies。
1. Four fundamental features of wave theory
(1) the rise and fall in the equity index will alternate
(2) the driving and adjustment waves are the two most basic patterns of price volatility, while the driving waves (i. E., waves that are consistent with large markets) can be divided into five smaller waves, generally expressed in wave 1, wave 2, wave 3, wave 4, wave 5, and can also be divided into three smaller waves, usually a, b, and c。
(3) after the completion of the above-mentioned eight waves (five to three) one cycle will be completed and the movement will enter the next eight wave cycle
(4) the length of time will not change the wave pattern, as the market will continue to evolve according to its basic pattern. Waves can be lengthened or condensed, but their basic pattern remains constant。
In short, wave theory can be summed up in one sentence: “eight wave cycle”。
Wave form
So how do we divide five waves up and three waves down? In general, the eight waves have different manifestations and characteristics:
Wave 1: (i) almost half of wave 1, which is the first part of the construction of the bottom pattern, and wave 1, which is the beginning of the cycle, tends to be very deep when wave 2, which rises after such wave 1, is followed by a large rise in such wave 1, which, in experience, tends to rise by the shortest of the waves, due to the fact that the rises are not strong because of the rebounds and reversals in the empty market and the continuing pressure on sales; and (ii) half of wave 1, which occurs after long-term clean-up, tends to rise by the shortest of the waves。
Wave 2: this wave is a wave of decline that ends when marketers erroneously think that the bear market is not over, and its adjustment falls considerably, almost ate the scale of the first wave. When the wave falls near the bottom (the beginning of the first wave), the market suffers from a downswing, the pressure to sell gradually collapses, and the volume of trade is shrinking, and in this wave, the shift pattern in the chart, such as the bottom, the double bottom, etc., is frequently observed。
Wave 3: wave 3 tends to be the largest and most explosive wave of upswings, which last for the longest time and in the longest time, with the confidence of market investors recovering, a substantial increase in turnover, and with breaking signals from traditional graphs, such as cracks jumping, which are very intense, with some graphic barriers, very easily broken, especially at the height of wave 1, the strongest of the buy-in signals, often “extension waves” due to the intensity of wave 3。
Wave 4: the 4th wave is a wave of readjustments that rises dramatically, usually in more complex shapes, with a tendency to “slash the triangle”, but the bottom of the 4th wave is not below the peak of the 1st wave。
Wave 5: in the fifth wave of the stock market, usually smaller than the third wave, with frequent failures. In the fifth wave, second, the three types of stocks are usually the dominant forces in the market, often growing more than the first category of shares (performance blue, large), often referred to by investors as “roast chickens”, during which market sentiment is quite optimistic。
Wave a: while most market investors in wave a believe that the rise has not yet been reversed, at a time when it is only a temporary buy-back phenomenon, the decline in wave a is in fact usually accompanied by warning signals in wave 5, such as trade-to-price deviations or deviations from technical indicators, but because the market remains optimistic at this time, wave a has sometimes experienced a flat adjustment or a “yes” type of operation。
Wave b: wave b is often a small trade-off, generally a multi-purpose escape line, but because it is an upswing, it is easy for investors to mistakenly assume that it is the upswing of another wave, creating a “multi-head trap” in which many people are trapped。
Wave c: a more destructive wave of decline, which was strong, widespread, prolonged and comprehensive。
From the above, wave theory appears to be quite simple and easy to apply, and in fact, because of the eight-wave cycle that is present in each full rise/down cycle, the small cycle in the large cycle, the smaller cycle in the small wave, the small wave in the large wave, and the small wave in the small wave, it makes the waves rather complex and difficult to grasp, together with the changing and complex patterns of their push-and-run and adjustment waves, which make the precise division of waves more difficult to define, both of which constitute the greatest difficulties in the practical application of wave theory。
3. Proportion of waves
Wave theory speculates that the rise and fall in the stock market are calculated using gold partition rates and mysterious figures. One wave could be at the last height of 1. 618, and the other could be multiplied by 1. 618, and so on。
This is also the case for the wave of fall, where the common rate of repulsion is 0. 236 (0. 382 x 0. 618), 0. 382, 0. 5, 0. 618, etc。
4. Some basic elements of the wave theory
(1) a complete cycle consists of eight waves, five to three。
(2) waves may be combined into higher waves or divided into lower waves。
(3) waves that follow the mainstream can be divided into five small waves at a lower level。
(4) of the three push waves, the third wave cannot be the shortest。
(5) if one of the three driving theories becomes an extended wave, the remaining two waves will have a consistent operating time and range。
(6) the adjustment wave usually operates in three waves。
(7) an odd combination of gold partition rates is the data base of wave theory。
(8) the response rate is 0. 382, 0. 5 and 0. 618。
(9) the bottom of the fourth wave may not be lower than the top of the first wave。
(10) wave theory consists of three parts: pattern, ratio and time, the importance of which is sequenced。
(11) wave theory mainly reflects popular psychology. The more people participate in the market, the more accurate it is。
5. Deficiencies in wave theory
(1) wave theorists do not agree on the phenomenon. Every wave theorist, including elliot himself, is, in many cases, beset by the question of whether one wave has been completed and has begun another? Sometimes it's the first wave and the second wave. A thousand miles away. The consequences of misdiagnosis can be serious. An uncertain set of theories is used in high-risk stock markets, and errors are enough to cause loss。
(2) it is even a complete wave that is not clearly defined, and the majority of the rises and drops in the stock market do not follow the mechanical pattern of five to three. But the wave theorists misinterpreted that some rises and falls should not be counted into the waves. Wave count is completely arbitrary。
(3) wave theory is known as extension waves, and in some cases five waves can stretch into nine waves. But when or under what guidelines can waves stretch? Elliot didn't make it clear, and turned the wave into an inspiration。
(4) waves of wave theory have waves that can extend indefinitely, i. E. Rises when they rise, are in the process of rising, a giant wave that can be used for a hundred decades. The waves can also fall to the point where they are still falling. As long as the rise is not complete, it is still rising and falling. What's the point of this theory? Whether or not to speculate about the running time at the bottom of the wave is highly questionable and amounts to pure speculation。
(5) elliott's wave theory is a set of subjective analytical tools with no objective criteria. Markets operate in emotional rather than mechanical ways. Wave theory applies to changing stock markets, and the opportunity for error is greater than anything。
(6) wave theory cannot be applied to individual stock selection。
