CTA Wave Theory & Cycle Analysis

Question 1

In Elliott Wave Theory, what are the three cardinal rules that must never be violated?

Accepted Answer

Wave 2 cannot retrace beyond wave 1's start; wave 3 cannot be the shortest; wave 4 cannot overlap wave 1's price territory

Answer

Wave 1 must be the longest, wave 3 must retrace 50%, wave 5 must exceed wave 3

Answer

Waves 1, 3, and 5 must all be equal; waves 2 and 4 must alternate; wave 5 must end with a Doji

Answer

Wave 3 must be extended; wave 4 must be complex; wave 5 must equal wave 1

Question 2

In Elliott Wave Theory, what is 'wave alternation' as it applies to corrective waves?

Accepted Answer

Corrective waves 2 and 4 tend to differ in form — if wave 2 is simple, wave 4 will be complex, and vice versa

Answer

Waves 1 and 3 must be equal in length

Answer

Each successive wave must alternate direction

Answer

Impulse waves must alternate with corrective waves at every degree

Question 3

Fibonacci ratios are integral to Elliott Wave Theory primarily because:

Accepted Answer

Elliott Wave proportions and retracements commonly align with Fibonacci ratios such as 0.618, 1.618, and 2.618

Answer

Fibonacci numbers determine the exact timing of market tops and bottoms

Answer

The Fibonacci sequence equals the Dow Jones average over time

Answer

Fibonacci ratios predict interest rate changes

Question 4

What is the most common Fibonacci retracement for Wave 2 in Elliott Wave Theory?

Accepted Answer

50% to 61.8%

Answer

23.6%

Answer

38.2%

Answer

78.6%

Question 5

In the context of Hurst Cycle Theory, what is a 'nominal model'?

Accepted Answer

A standardized framework of idealized cycles at various periodicities that form the building blocks of cycle analysis

Answer

A price prediction model using fundamental analysis

Answer

A chart showing only nominal (inflation-adjusted) prices

Answer

A model using only monthly data

Question 6

What is the 'principle of commonality' in J.M. Hurst's cycle analysis?

Accepted Answer

Similar cyclic patterns appear across many different markets and instruments simultaneously

Answer

All stocks trade in the same direction at all times

Answer

Cycle lengths are the same in every asset class

Answer

Moving averages are identical across markets