Forex Elliot Wave Theory (2)
Elliot Wave Formation
Elliott finds these waves in all time frames and finds that the wave structure is fractal, meaning that the wave structure will consist of smaller derived waves or subwaves that form the same five and three wave structures. Each successive small wave structure is a lower-level wave structure, although this structure does not conform to smaller time frames and may appear in the same time frame as larger wave structures. Elliott identifies several degrees of wave structure, which are classified and labeled, from the largest to the smallest such as:
Level Wave Motive Wave Corrective Wave
It is important to note that motive waves do not necessarily indicate bullish price hikes and corrective waves do not necessarily indicate a bearish price decline. Instead, motive waves move toward a higher level one wave. Thus, in motive waves, wave derivatives 1, 3, and 5 are also motive waves while subordinate waves 2 and 4 are corrective and move in opposite direction of wave with higher degrees. Similarly, in corrective wave, wave A and wave C are motifs while wave B is corrective. Note: Motive waves are sometimes called impulse waves, but they are not the same thing. Motive waves can be either less common impulse waves or diagonal triangles.
Well, this is the basis of the Elliot Wave theory and there are still more rules to adhere to in order for this theory to be perfectly formed.