# The Basic Elliot Wave Theory Patterns

### Video Transcription:

Hello Traders. Welcome to the Elliot Wave Theory course and the first module introduction to the Elliot Wave Theory. In this lesson we are going to learn the basic Elliot Wave design. The first thing we are going to learn is the five-wave pattern, okay? Actually this is the basic Elliot Wave Design, but we have divided the basic Elliot Wave Design in two parts.

The first part is the five-wave pattern. Ralph Nelson Elliot discovered that the market moves very often in a sequence of five waves when it’s trending. So the five-wave pattern, it’s going to be our directional pattern. Three of these waves are directional waves, and two of them are counter-trend interruptions. This means that when market trends, and you have to have noticed this, it doesn’t trend in a straight line. It always trends and then corrects back a little before continuing with the trend. The basic five-wave pattern is going to teach you how to spot where the trend is at at the time you are looking at the chart. This means that you are going to learn how to spot the end of trends better than any other technical analyst out there.

At any time the market can be identified as being somewhere in the basic five-wave pattern at the largest degree of the trend. This means that if you go to the higher timeframes, we’re talking about the four hour daily, maybe weekly, charts, you are always going to be able to plug in the five-wave pattern where the market is at. The reason is because the five-wave pattern is the overriding form of market progress and all of the patterns are subsumed by it. I am going to show you how the five pattern looks like, okay? We have the first wave, or the first directional wave, that ends at this high. Then we have the second wave, which is a counter-trend interruption and the first counter-trend interruption. Then we have the third wave, which is normally larger than wave one, our fourth wave, which is the second counter trend interruption wave, and then the five-wave pattern ends at the top right here where the fifth wave ends.

Now it is very hard to spot the market right here in wave one, so what you normally do is wait of the first wave to show, then the first counter-trend interruption, then the third wave, and when you have located the third wave, you wait for the fifth wave to trade. When you have learned how to correctly identify the first two waves, you are going to be able to trade from wave two to till the end of wave three, but for the time being, it’s better if you just try to identify these patterns in the market. Now this is the basic of five-wave pattern on the Elliot Wave Principle. Now at the end of wave five we are going to find the three-wave pattern. And the three-wave corrective patterns is, as its name defines it, a corrective pattern formed by three waves.

And basically, there are two modes of waves development, and we call wave development a wave pattern. The first one is the motive or directional wave development, and the second one is the corrective wave development, which we are talking about right now. Motive has a five wave structure, while corrective has three wave structure. You will always look for the third wave corrective pattern when the five wave directional pattern completes at the end of wave five. So this means that we have the five wave pattern here, or the motive wave development. At the end of wave five you are going to find the first corrective wave, and you will notice that this is a corrective wave because it’s larger than the counter-trend corrections on the five wave pattern.

So at the end of wave five, and when you see that…well, you will notice that we are at the end of wave five when wave A appears. This means that at the end of wave five, and when market starts to correct and corrects more than a small counter-trend correction here, you know that we are starting a three-wave corrective pattern with wave A. Then we have a counter-trend corrective wave to the upside because we are in a corrective market is trending to the upside right now. And then at the end of wave five we are going to start the three-wave corrective pattern to the downside, meaning that the B-wave is going to be a small corrective wave to the upside. And then the three-wave corrective pattern ends at the end of wave C when the overall corrective move ends. This means that we have one directional move from wave one to wave five, and then we have a corrective move from wave A to wave C. And at the end of wave C you can find the beginning of a new five-wave pattern.