Elliott Wave Theory is an extension and refinement of Dow Theory. Dow Theory’s primary trend, secondary reactions, and minor trends correspond to Elliott’s degrees of waves.
Description
Charles Dow’s theory of market trends preceded Elliott’s work and provided a foundation that Elliott extended. Dow identified three types of trends (primary, secondary, minor) and three phases of a bull market. Elliott’s 5-3 wave structure encompasses and refines these concepts, applying them fractally across all degrees of trend.
Key Points
- Dow’s three trends correspond to Elliott’s degrees (primary = Primary degree; secondary = Intermediate)
- Dow’s three bull market phases map to Elliott’s waves 1, 3, and 5
- Dow’s confirmation principle (averages must confirm each other) provides additional wave count validation
- Elliott went beyond Dow by specifying the exact wave structure (5 up, 3 down) and applying it fractally
- Dow Theory’s concept of trend lines is incorporated in Elliott’s channeling technique
