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

Elliott Wave's three inviolable rules are: Wave 2 never retraces 100% of Wave 1; Wave 3 is never the shortest impulse wave; Wave 4 never enters Wave 1's price territory (except in some futures).

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

The guideline of alternation states that wave 2 and wave 4 corrections tend to differ in structure and complexity — a sharp wave 2 is usually followed by a sideways/complex wave 4.

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

Elliott found that wave retracements and extensions frequently occur at Fibonacci ratios, with the 0.618 golden ratio particularly prevalent in wave relationships throughout market structure.

Question 4

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

Accepted Answer

50% to 61.8%

Answer

Wave 2 commonly retraces 50% to 61.8% of Wave 1, though it can retrace up to 99% — as long as it does not fully retrace Wave 1's entire range.

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

The nominal model in Hurst Cycle Theory is a set of idealized cycles with specific average lengths (e.g., 40-week, 20-week, 10-week cycles) used as a reference framework for cycle analysis.

CTA - Certified Technical Analyst Practice Test

CTA - Certified Technical Analyst Practice Test

CTA Wave Theory & Cycle Analysis