Fractal Nature of Elliott Waves
In this section, we will discuss how the concept of Fractal applies to Elliott Wave Theory.
What are fractals?
Fractals are easily found in nature. These objects display self-similar structure over an extended, but finite, scale range.
Examples include clouds, snowflakes, mountains, river networks, cauliflower or broccoli, and systems of blood vessels.
Let us understand with the example of a tree.
There are branches within branches.
Trees are fractal in nature. A branch from a tree is a miniature replica of the main tree. It is not identical but similar in nature.
This concept can be very well applied to Elliott waves.
There are waves within waves
One of the basic tenets of Elliott Wave theory is that market structure is fractal in character. Elliott Wave patterns that show up on the long term chart, it is seen as composed of a pattern of waves, but when the same wave is seen on a short term chart, it is seen as composed of a pattern of waves, with sometimes more complex structures.
Now for example the internal structure of waves 1, 3 and 5 in an impulse pattern is 5 Waves as seen in a lower time frame chart.
Wave 2 and 4 have an internal structure of 3 waves as seen in a lower time frame chart i.e. they are corrective in nature.
Similarly in Zigzag correction, waves A and C have a 5 wave internal structure. Wave B has a 3 wave internal structure
A Flat correction shows Waves A and B having 3 waves internal structure and Wave C is a 5 waves internal structure
In a triangle correction, waves A to E all show a 3 Wave structure
So the challenging partof Elliott wave theory is figuring out the wave structure. Thus, the key to Elliot waves is the ability to identify the wave context with larger degree waves.
Note: There are some set rules & guidelines to identify each type of wave pattern. We will go through each of them in our upcoming units.