Elliott Wave Rules and Guidelines
A correct Elliott wave "count" must observe three rules:
- Wave 2 always retraces less than 100% of wave 1.
- Wave 3 cannot be the shortest of the three impulse waves, namely waves 1, 3 and 5.
- 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.
Read more about this topic: Elliott Wave Principle
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