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Chapter 3. Pattern Identification > Elliott Wave Theory

Elliott Wave Theory

The analysis of harmonic price structures is based upon the elements of simple Geometry and resembles the measuring techniques of Elliott Wave principles. I strongly recommend reading Elliott Wave Principle, by Robert Prechter and A. J. Frost. This profound work advanced the original writings of R. N. Elliott and offers a comprehensive explanation of the universal geometric relationships of natural law as they relate to price action in the financial markets. Furthermore, the Wave Theory and the discoveries of R. N. Elliott were some of the primary technical works that established the basic technical foundation for the identification of specific price structures based upon quantified wave counts.

Unlike the general structures of Elliott Wave Analysis, Harmonic Trading focuses on specific price movements. Harmonic Trading is unique in its approach of defining precise price structures, differentiating these movements with respect to their Fibonacci alignments. For example, most technicians are aware of the “M” and “W” corrective patterns explained within Elliott Wave Analysis. These corrective structures—either simple “abc” pullbacks or complex “abcde” formations—are vital in the validation of wave counts and Elliott Wave Theory. However, Harmonic Trading quantifies all of the Fibonacci aspects within a particular structure, further refining these “M’s” and “W’s” as unique technical patterns.


  

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