Elliott Wave Theory is one of the most popular prediction model to speculate the direction of prices in Stock Market. It was developed by R.N. Elliott and got popular through the efforts of Robert Prechter. Elliott Wave theory is primarily based on Dow theory which asserts that stock prices moves in cycles. These cycles are a result of mass psychology which shows up repetitive patterns when applied on stock charts. Every single element of these patterns are termed as waves in Elliott wave theory. In this post we would understand Elliott Wave patterns in detail and learn how to compute waves in Elliott Wave Analysis Excel Sheet. This excel sheet is downloadable at the end of this post.
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Deep Dive into Elliott Wave Theory
As per Elliott Wave Theory, a combination of 8 waves constitute a complete price cycle. Out of these 5 are called Impulsive waves and 3 are called Corrective waves.
When the primary market trend is bullish, impulsive waves are in direction of trend (upwards) while corrective waves are opposite to the trend (downwards).
The above pattern formation does not depend on timeframe. You can observe Elliott wave patterns in intraday charts as well as monthly charts. However, the probability of false waves decreases in higher time frame charts.
There are 3 guiding principles or rules regarding the wave lengths in Elliott Wave cycle:
Rule 1: Wave 2 cannot retrace more than 100% of Wave 1.
Rule 2: Wave 3 can never be the shortest of the three impulse waves.
Rule 3: Wave 4 can never overlap Wave 1.
Elliott Wave Theory Example Chart
Below is the practical application of Elliott wave theory in Crude Oil chart:
Elliott Wave Analysis Excel Sheet Overview
This excel sheet calculates the possible range and time period of Elliott waves based on the input for wave 1. See the below description:
|Worksheet Name||Elliot Wave Calculator|
|Inputs||Number of candles (B5,B16)||Number of candles or bars wave 1 lasted.|
|Start Price (C5,C16)||Starting price for wave 1|
|End Price (D5,D16)||End price for wave 1|
|Outputs||Time Period (column E)||Time Period for each wave|
|Wave 2,3,4,5,a,b,c range and time period||The probable range and time period of other waves based on input given for wave 1|
How to use this Excel Sheet?
Please follow the below instructions to download multiple stock quotes into Excel for free:
Step 1: Download the sheet from the end of this post to your local computer.
Step 2: Open this Excel file and input parameters for wave 1 in the highlighted yellow cells.
Step 3: Check probable range of other waves and plan your trades accordingly.
Download Link for Elliott Wave Analysis Excel Sheet
Please download the Excel sheet from the below link. Let us know in the comments section if you have any queries.