Today (Thursday, January 14) I'm reaching into the hat of Elliott wave structures and pulling out the most important design of all: the basic Five-Wave Form. See the ideal model below before reading on:
Also known as the "motive" mode of wave developement, the five-wave form is the overlying bedrock on which all 13 known Elliott patterns are built. Understanding its construction and composition is the first (AND only) step toward that decisive "AHA!" moment of seeing the big Elliott wave picture in full.
Here's the gist, as provided by Chapter One: The Broad Concept, in Elliott Wave Principle -- Key to Market Behavior: "In markets, progress ultimately takes the form of five waves of a specific structure," thus divided along the following line:
Three waves (labeled 1, 3, and 5): These "impulse" waves are clear and easy to recognize. They always move in the same direction as the trend of one larger degree, and therefore, sail smooth and swift with the wind at their back.
Two waves (labeled 2 and 4): These are "corrective" interruptions that move counter the larger trend. They swim against stream, and are therefore choppy and complex. They subdivide into three waves (A, B, C) as they lack the muscle to complete a full, five-wave sequence.
Next on the docket: the Three Main Rules to the Five-Wave Form. They are:
- Wave 2 never moves beyond the start of wave 1.
- Wave 3 is never the shortest among waves 1, 3, 5.
- Wave 4 never ends in the price territory of wave 1.
One final thing to note: All Elliott waves are fractals by nature; meaning: they replicate their exact shape, at different scales. You can see this in the diagram at the top of the page: Primary wave 1 (circled) subdivides into Intermediate waves (1) through (5), which themselves subdivide into Minor waves 1 through 5.
Now that we've covered the basic concept of the five-wave form, let's see its actuality in the real-time price action of Corn. Here, the labeled close-up below comes directly from the January 12 Daily Futures Junctures, on-line now.
Right away, one can see the five-wave form at work on three different degrees of scale: Supercycle wave (V), red: 2006-2008. Cycle wave V, green: 2007-2008. Primary wave 5, circled, purple: 2008
Using our new-found knowledge of the motive pattern, we can do a little Elliott wave analysis right here on our very own; namely: Once five waves are up, three-waves down follows -- which is exactly what's been unfolding in Corn from its 2008 peak.
The best part is: In the January 12 Daily Futures Junctures, EWI's chief commodity analyst and long-time Futures Junctures Service editor Jeffrey Kennedy reveals how far along in the three-wave correction Corn prices are -- along with detailed price charts for Wheat and Soybeans.