Elliott Wave Principle - Elliott Wave Rules and Guidelines

Elliott Wave Rules and Guidelines

A correct Elliott wave "count" must observe three rules:

1. Wave 2 always retraces less than 100% of wave 1.
2. Wave 3 cannot be the shortest of the three impulse waves, namely waves 1, 3 and 5.
3. Wave 4 does not overlap with the price territory of wave 1, except in the rare case of a diagonal triangle.

A common guideline observes that in a five-wave pattern, waves 2 and 4 will often take alternate forms; a sharp move in wave 2, for example, will suggest a mild move in wave 4. Corrective wave patterns unfold in forms known as zigzags, flats, or triangles. In turn these corrective patterns can come together to form more complex corrections.