PUG (Elliott) Wave Technical Analysis Tutorial - Pugsma
PUG (Elliott) Wave Technical Analysis Tutorial (by PUG Stock Market Analysis, LLC) PUG (Steve) uses the Elliott Wave Principle, Channels, Momentum Oscillators and Pattern Recognition to Forecast Market Direction. Website: www.pugsma.com The Elliott Wave Principle – Based on Ralph Nelson Elliott’s conviction that social or crowd behavior trends and reverses in identifiable patterns (waves) or cycles. Chapter 1: Elliott Wave Basics Chapter 2: Wave Ratios and Measurements Chapter 3: Corrective Waves 5/6/2020 PUG Stock Market Analysis, LLC (pages 2-5) (pages 6-14) (pages 14-20) 1
Chapter 1: Elliott Wave Basics The basic pattern of the market is the motive wave that unfolds in a 5 wave pattern. Waves 1, 3 and 5 move in the direction of the trend or impulse. Waves 2 and 4 are counter trend retracements of the motive wave. 5/6/2020 PUG Stock Market Analysis, LLC 2
Chapter 1: Elliott Wave Basics Motive Wave Rules (5 Waves - Numbered 1, 2, 3, 4, 5) Wave 2 can’t retrace more than 100% of Wave 1. Wave 3, often represents the strongest part of the market cycle, can’t be the shortest by price, compared with Wave 1 or Wave 5. Wave 4 cannot overlap the highest price of Wave 1 (Unless for the special case of a Leading or Ending Diagonal). Corrective Wave Rules (3 Waves - Lettered A, B, C) Wave B can’t retrace more than 100% of Wave A (Unless for special case of an Expanded Flat). A complete wave cycle is 8 waves, 5 motive wave followed by 3 corrective waves. 5/6/2020 PUG Stock Market Analysis, LLC 3
Chapter 1: Elliott Wave Basics Motive (Impulse) Wave Structure (5 Waves - Numbered 1, 2, 3, 4, 5) Waves 1, 3 and 5 are 5-wave structures Waves 2 and 4 are 3-wave structures Corrective (Zig-Zag) Wave Structure (3 Waves - Lettered A, B, C) Wave A and C are 5-wave structures. Wave B is a 3-wave structure. 5/6/2020 PUG Stock Market Analysis, LLC 4
Chapter 1: Elliott Wave Basics One of the keys to interpreting wave counts is to determine what degree the wave in question represents. Each wave could be part of another wave of a higher degree, which in turn could be part of another wave of an even higher degree. In Elliott’s original work, he identified nine degrees of waves, that could range from decades to intraday movements. Elliott’s labels read a little like the classification of living things: 1) Grand Supercycle 2) Supercycle 3) Cycle 4) Primary 5) Intermediate 6) Minor 7) Minute 8) Minuette 9) Subminuette PUG Wave Labeling: (Using only 7 of Elliott’s original 9 wave classification) Super Cycle: Cycle: Primary: Major (Interm): Minor: Minute: Minuette: SCI-SCV, SCA-SCC C1-C5, CA-CC P1-P5, PA-PC [1]-[5], [A]-[C] 1-5, A-C (1)-(5), (a)-(c) i-v, a-b Decades 2 to 10 years 1 to 2 years Several Months 1 to 2 Weeks Several Days Several Hours Primary Count: White/Green Labels (Bull Market) White/Red Labels (Bear Market) Alternate Count: Blue Labels 5/6/2020 PUG Stock Market Analysis, LLC 5
Chapter 2: Wave Ratios and Measurements This spiral, which takes the form of a Nautilus seashell, is commonly used to describe the mathematical ratio that Elliott Wave theorists lean on to explain why the stock market follows similar patterns to those found in natural systems, including living creatures on earth and galaxies in space. 5/6/2020 PUG Stock Market Analysis, LLC 6
Chapter 2: Wave Ratios and Measurements The Fibonacci ratio of 0.618, made famous by a 13th-century mathematician named Leonardo Fibonacci of Pisa, is based on a number sequence, in which the sum of two adjacent numbers forms the next higher number (1, 1, 2, 3, 5, 8, 13 .). It is often referred to as the golden, or divine ratio, because it has been found throughout nature, such as in the DNA double helix, how petals on a flower are arranged, proportions of the human body, a galaxy spiral, and so on ad infinitum. In Elliott Wave, the five waves of a motive phase have a Fibonacci relationship with the eight waves of a complete cycle and each wave or phase tends to have a Fibonacci relationship with other waves or phases; thus a retracement phase is often close to 0.382 (1 minus 0.618), or up to 0.618, the length of the motive phase. 5/6/2020 PUG Stock Market Analysis, LLC 7
Chapter 2: Wave Ratios and Measurements The price distance of each wave is measured as a vertical distance from the beginning of the wave to the end of the wave. The length is measured in price points or units. The first wave in a Motive (Impulse) is Wave 1. The measurement of Wave 1 is used to find ratios of other waves. These ratios are not rules, but guidelines in estimating the lengths of different waves. Ratios for Wave 2 Fibonacci Rule for Wave 2: Wave 2 is always related to Wave 1. Common Ratios for Wave 2: Wave 2 typically is 50% of Wave 1 or 62% of Wave 1 However there are times of 38% in strong markets or 78% to 88% retracements in weak markets. 5/6/2020 PUG Stock Market Analysis, LLC 8
Chapter 2: Wave Ratios and Measurements Ratios for Wave 3 Wave 3 is typically related to Wave 1 by one of the following: 5/6/2020 Wave 3 1.62 x length of Wave 1 or 2.62 x length of Wave 1 (extended Wave 3) or 4.25 x length of Wave 1 (extended Wave 3) However there are times of Wave 3 Wave 1 or less in weak prices. PUG Stock Market Analysis, LLC 9
Chapter 2: Wave Ratios and Measurements Ratios for Wave 4 Wave 4 is related to Wave 3 by one of the following: Wave 4 23% of Wave 3 or 38% of Wave 3 or 50% of Wave 3 The 23% and 38% are the most common ratios for Wave 4. 5/6/2020 PUG Stock Market Analysis, LLC 10
Chapter 2: Wave Ratios and Measurements Ratios for Wave 5 Wave 5 is related to Wave 1 by one of the following: Wave 5 Wave 1 or 1.38 x length of Wave 1 or 1.62 x length of Wave 1 The Wave 5 Wave 1 is the most common ratio. If Wave 3 is extended to 2.62 to 4.25 x Wave 1, then Wave 5 could be truncated at 0.62 x Wave 1. 5/6/2020 PUG Stock Market Analysis, LLC 11
Chapter 2: Wave Ratios and Measurements The first wave of a Simple A-B-C Corrective (Zig-Zag) is a Wave A. Ratios for Wave B Wave B is related to Wave A by one of the following: Wave B 38% of Wave A or 50% of Wave A (most common) or 62% of Wave A or 78% of Wave A Ratios for Wave C Wave C is related to Wave A by one of the following: Wave C Wave A (most common) Wave C 1.62 x the length of Wave A Wave C 2.62 x the length of Wave A 5/6/2020 PUG Stock Market Analysis, LLC 12
Chapter 2: Wave Ratios and Measurements Once the 5th Wave starts, the Elliott Channel Technique can be used to project the end of the 5th Wave. Once Wave 4 has been completed, draw a straight line between Waves 2 and 4 forming the lower channel line. 5/6/2020 PUG Stock Market Analysis, LLC 13
Chapter 2: Wave Ratios and Measurements Now draw two lines parallel to the lower channel line connecting the tops of Waves 1 and 3. Expect Wave 5 to end on one of the two upper channel lines. Usually, if Wave 3 was a normal wave, Wave 5 tends to end on the channel drawn from the Wave 3 top. If Wave 3 was extended and a runaway type of wave, Wave 5 tends to end on the channel drawn from the top of Wave 1. 5/6/2020 PUG Stock Market Analysis, LLC 14
Chapter 3: Corrective Waves Corrections are very hard to master. Most Elliott Wave traders make money during motive (impulse) waves and lose during corrective waves. A motive (impulse) pattern consists of five waves. The corrective pattern consists of 3 waves, with the exception of a triangle. An Impulse pattern is always followed by a Corrective pattern. Corrective patterns can be grouped into two different categories: 1) Simple Correction (Zig-Zag) 2) Complex Correction (Flat, Irregular Exapanded Flat or Triangle) 5/6/2020 PUG Stock Market Analysis, LLC 15
Chapter 3: Corrective Waves Simple Corrections (Zig-Zag): A simple correction has one pattern only. This pattern is called a Zig-Zag correction. A Zig-Zag correction is a 3-wave pattern(A-B-C) where the Wave B does not retrace more than 78% of Wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag correction always has a 5-wave pattern. Wave B is 3 waves and Wave C is 5 waves (5-3-5). In the other two types of corrections (Flat and Irregular Flat), the Wave A has a 3-wave pattern. Thus, if you can identify a 5-wave pattern inside Wave A of any correction, you can then expect the correction to turn out as a Zig-Zag formation. 5/6/2020 PUG Stock Market Analysis, LLC 16
Chapter 3: Corrective Waves Flat Corrections: In a Flat correction, the length of each wave is identical (A B C). The waves A & B are 3-waves. Wave C is 5-waves. 3-3-5 Wave Pattern. After a 5-wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B to the previous high. Finally, the market drops one last time in Wave C to the previous Wave A low. 5/6/2020 PUG Stock Market Analysis, LLC 17
Chapter 3: Corrective Waves Irregular (Expanded) Flat Corrections: In an Irregular Flat correction, the B Wave makes a new high. Wave C may drop to end of Wave A or below (more common). The waves A & B are 3-waves. Wave C is 5-waves. 3-3-5 Wave Pattern. After a 5-wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B beyond the previous high. Finally, the market drops one last time in Wave C to the previous Wave A low or below. 5/6/2020 PUG Stock Market Analysis, LLC 18
Chapter 3: Corrective Waves Triangle Wave Corrections: The Elliott Triangle is a 5-wave pattern where all the waves cross each other. The five sub-waves of a triangle are designated A, B, C, D, and E in sequence. Each sub-wave is a 3-wave move. Prices tend to shoot out of the triangle formation in a swift “thrust.”. Triangles are by far most common as fourth waves. One can sometimes see a triangle as the Wave B of a 3-wave correction. When triangles occur in Wave 4, the market thrusts out of the triangle in the same direction as Wave 3. When triangles occur in Wave B, the market thrusts out of the triangle in the same directions as the Wave A. 5/6/2020 PUG Stock Market Analysis, LLC 19
Chapter 3: Corrective Waves Alteration Rule: For an impulse if Wave 2 is a simple correction, expect Wave 4 to be a complex correction. For an impulse if Wave 2 is a complex correction, expect Wave 4 to be a simple correction. 1) Simple Correction (Zig-Zag) 2) Complex Correction (Flat, Irregular Expanded Flat or Triangle) 5/6/2020 PUG Stock Market Analysis, LLC 20
Chapter 1: Elliott Wave Basics (pages 2-5) Chapter 2: Wave Ratios and Measurements (pages 6-14) Chapter 3: Corrective Waves (pages 14-20) PUG (Steve) uses the Elliott Wave Principle, Channels, Momentum Oscillators and Pattern Recognition to Forecast Market Direction. Website: www.pugsma.com 5/6/2020 PUG Stock Market Analysis, LLC 1
Harris DCN 7035538 PUG L2 Vol 5 Rev E has been placed under Gov. GS control as GOES-R Series 416-R-PUG-L2 Plus-0349 Vol 5 Rev 1.0. Rev. 1.1 CCR-03332 10/27/2017 All CDRL SE-16 under Government Control. Harris DCN 7035538 PUG L2 Vol 5 Rev F has been placed under Gov. GS control as GOES-R Series 416-R-PUG-L2 Plus-0349 Vol 5 Rev 1.1.
Wave a and Wave c are constructed of five waves as Elliott originally proposed. As opposed to the five wave impulse move in Elliott’s original version that could form either a Wave 1, Wave 3, Wave 5, Wave A or Wave C the harmonic version can only f
So, the wave 1, wave 3 and wave 5 are parts of impulsive wave in upward direction. [6] Though Elliott waves follow many rules but three basic rules are followed by each wave to interpret Elliott wave. These guidelines are unbreakable. These rules are as follow: Rule 1: Wave 2 is not retracted more than 100% of wave 1.
So, the wave 1, wave 3 and wave 5 are parts of impulsive wave in upward direction. [2] Though Elliott waves follow many rules but three basic rules are followed by each wave to interpret Elliott wave. These guidelines are unbreakable. These rules are as follow: Rule 1: Wave 2 is not retracted more than 100% of wave 1.
Motive Wave. It is a five wave trend but unlike a five wave impulse trend, the Wave 4 overlaps with the Wave 1. Ending Diagonals are the last section ("ending") of a trend or counter trend. The most common is a Wave 5 Ending Diagonal. It is a higher time frame Wave 5 trend wave that reaches new extremes and the Wave 3:5 is beyond the .
Elliott wave triangle waves usually occur in the position of wave B or wave 4 of the larger pattern. A triangle wave is usually the penultimate move in the larger Elliott wave pattern and leads to an explosive move back into the larger trend. Contracting triangle The contracting triangle is a horizontal contraction in range of the price.
Because of that, an Elliott Wave cycle shows a five-waves market decline or advance, corrected by the other three waves. To count an impulsive wave, Elliott used numbers and he used letters for a corrective wave. As such, a bullish or bearish cycle has a 1-2-3-4-5- a-b-c count. These eight waves form the Elliott Wave Principle key to market behavior.
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