Unlocking the Power of Fibonacci in Elliott Wave Analysis

by | Elliott Wave Articles

The basic Elliott Wave structure is five waves in a forward motion, followed by three waves in the opposite direction. Five steps forward, three steps back.

Within this basic structure, Fibonacci mathematics can be used to identify how deep a corrective wave may go and to calculate targets for motive waves.

Second wave corrections are commonly deep and the 0.618 Fibonacci retracement is normal. However, because each market is different, it is important to develop a thorough long-term Elliott Wave count on your market and note its tendencies in terms of Elliott Wave.

Third waves are commonly 1.618 to 2.618 the length of the first wave, but again, each market is different. While these ratios are useful for the Gold market, the S&P500 will often exhibit even more extended third waves, so 4.236 or even 6.854 may be used to calculate targets for third waves.

Fourth wave corrections are commonly shallow to their third waves. The 0.382 Fibonacci ratio would be a typical retracement for Gold, but for the S&P500 the 0.236 or even 0.146 Fibonacci ratios can be common.

Finally, fifth waves most commonly exhibit a Fibonacci ratio of equality to their first waves, or 0.618 to their third waves.

Utilising this knowledge of how to incorporate Fibonacci into Elliott Wave forecasting can improve accuracy.