The classic Elliott Wave theory is dead — Long Live the Modified and Better Elliott Wave theory!

Part 2. What is the Harmonic Elliott Wave and how it is different from the classic version of the Wave Principle.

In the first part of this article I noted that the major discovery made by R.N.Elliott in 1930’s was a phenomenon of repeating patters regularly played out by financial markets. More than eighty years ago he studied self made charts of the US Industrials stock index and discovered that any major trend either up or down had a similar structure that could be subdivided into five distinctive segments or “waves” (see the chart below).

The waves 1, 3 and 5 drive the price in direction of the main trend. In up trend each of those waves drive price to higher highs. In a down trend each of those waves push price to lower lows. And waves 2 and 4 are temporary countertrend pullbacks. You can read more details about this pattern in the first part of this article.

But even more important breakthrough he made was the discovery of fractal nature of price structures. That means that the same price patterns combined together formed identical pattern on a larger scale.