The Elliott Wave Principle

Whether you are an investor, a trader, or an analyst… You have certainly already heard of the Elliott Wave Theory. This book explains in detail the ideas and principles associated with this theory.

What’s in the book?

Basics

Obviously, this book starts by setting out the basics of the theory. You will discover that according to Elliott, financial markets are governed by a simple principle: stock prices always consist of an impulsive phase followed by a corrective phase. The impulsive phase consists of 5 waves: 3 impulsive waves and 2 corrective waves. The corrective phase consists of 3 waves: 2 corrective waves and 1 impulsive wave.

You will also learn that each wave has particular characteristics and is very recognizable. Each wave also has a name to identify it. For example, there is wave 1, wave 2, wave A, wave E…

Patterns

This book presents all the patterns associated with the theory. You will discover zigzags, triangles, and flats. You will see their characteristics, how to distinguish them, and also how to predict them.

Principles

The principle of alternation, the principle of scale and cyclic… All the principles of the theory are presented and explained. You will be surprised to find out that according to these principles, Elliott Waves have been present for hundreds of years.

Fibonacci

About halfway through the book, there is a small aside to introduce you to the golden ratio and explain how it applies to Elliott Wave Theory. You will read that in fact the golden ratio is found absolutely everywhere and that stock prices are no exception to the rule.

Practical application

You will also learn that in practice, Elliott Wave Theory is not really used to forecast the market (because no one can predict the market), but it is used to give context to your investment and trading decisions. It can also give you a significant edge if you wish to implement Elliott Waves in your trading.

My thoughts

I think it’s a good book. It is sometimes a bit technical but overall everything is understandable if you put some effort into reading. A small drawback: examples are given to understand the theory explained in the book, but they are not always very clear and are not current since the book is at least 30 years old.

However, there is a lot of information in this book. Once you finish it, you feel like you haven’t retained anything because of the mass of information. That’s why I would have liked to have a quick summary of the characteristics of each wave and pattern at the end. I strongly recommend taking notes while reading so that you can make your own summary of the theory at the end of the book, as the information is scattered all over the place so it is difficult to understand if you don’t summarise the book properly.

Who should read it?

I think every investor or trader should read it as it presents some very interesting ideas that are still relevant today. Even if you are not a technical analysis specialist and do not want to push Elliott Wave analysis very far, having some knowledge about it can always be useful to improve your decisions.