Stocks & Commodities V. 24:5 (64-67, 76): The Third Wave by Mircea Dologa, M.D.
Does the crowd always behave the same way? According to Elliott wave theory, they do, and this is what forms the basis of the impulse pattern of five waves. Hereís part 1 of a quick study.
When it comes to trading different types of trend
waves, trading wave 3 in Elliott wave theory is the most profitable, even if the position may sometimes reach its maximum accepted limit. Itís a question of observing all this unwinding (referred to as chaos by academics) in a tri-dimensional approach. In the first dimension, you must grasp the meaning of each trendís module. In the second, you must follow up on the functionality of the continuous developing mechanism. And in the third, you must trade ó that is, make decisions ó and preserve capital.
THE FRACTAL NATURE OF WAVES
In his wave theory, R.N. Elliottís major innovation pointed out that the crowd always behaves the same way, thus constituting the impulse pattern of five waves (noted as W1 through W5), immediately followed by correction pattern of three waves (noted as A, B, C). When all these waves (impulsive or corrective) contain themselves within multiple levels of subwaves, typically referred to as lesser-degree waves (Figures 1 and 2), you understand the fractal nature of the waves.