You are on page 1of 10

Elliott Wave ~ Rules and Guidelines

Motive Waves
Impulse (5-3-5-3-5)

Rules - An impulsive wave always subdivides into five waves (1-2-3-4-5). - Wave 1 usually subdivides into an impulse or seldom into a leading diagonal. - Wave 3 subidivides into an impulse. - Wave 3 always moves beyond t e end of wave 1. - Wave 3 is never the shortest wave. - Wave 5 subidivides into an impulse or an ending diagonal. - Wave 2 subidivides into a !ig!ag" flat or #ombination. - Wave 2 never moves e!ond the start o" wave #. - Wave 4 subidivides into a !ig!ag" flat" triangle or #ombination. - Wave $ never moves into the territor! o" wave #. Guidelines - Wave 1" 3 or 5 is usually e$tended" w ile wave 1 is t e least #ommonly e$tended wave. - %f wave 3 is e$tended" it&s #ommon for subwave 3 of 3 to e$tend as well (t e same applies for wave 1 and 5). - 'ubwave 3 of 3 almost always as t e steepest slope wit in t e parent impulse. - Wave 5 often ends w en itting a line drawn from t e end of wave 1 or 3 t at is parallel to a line drawn between t e ends of waves 2 and 4. - Wave 5 normally ends beyond t e end of wave 3" if not it&s #alled a trun#ation. - %f wave 2 was a s arp #orre#tion" wave 4 will almost always be a sideways

#orre#tion and vi#e versa (Alternation). - Wave 2 is usually a !ig!ag or !ig!ag #ombination. - Wave 4 is ususally a flat" triangle or #ombination t ereof. - Wave 4 usually ends wit in t e pri#e territory of t e fourt wave of wave 3. %ia&onal (3-3-3-3-3 or 5-3-5-3-5) Rules - A diagonal always subdivides into five waves (1-2-3-4-5). - Wave 4 never moves beyond t e end of wave 2. - Wave 4 always moves into t e pri#e territory of wave 1. - %n t e #ontra#ting form" wave 5 is s orter t an wave 3" wave 3 t an wave 1 and wave 4 t an wave 2. - A line drawn between t e ends of waves 2 and 4 #onverges towards (in t e #ontra#ting form) or diverges from (in t e e$panding form) a line drawn between t e ends of waves 1 and 3. Guidelines - Waves 2 and 4 usually retra#e (2 to )* + of t e previous wave. Ending Diagonal (3-3-3-3-3)

Rules - An ending diagonal is always a wave 5 of an impulse or a wave , of a !ig!ag or flat. - All waves subdivide into !ig!ags. Guidelines - Wave 5 usually end beyond t e end of wave 3 (if not it&s #alled trun#ation).

Leading Diagonal (3-3-3-3-3 or 5-3-5-3-5)

Rules - A leading diagonal is always a wave 1 of an impulse or a wave A of a !ig!ag. - Waves 2 and 4 subdivide into !ig!ags. - Wave 5 ends beyond t e end of wave 3. Guidelines - Waves 1" 3 and 5 are usually !ig!ags but #an also be impulses.

'orre(tive Waves
)i&*a& (5-3-5)

Rules - A !ig!ag #omprises t ree waves (A---,).

- Wave A is an impulse or leading diagonal. - Wave - #an be any #orre#tive pattern. - Wave - never goes beyond t e start of Wave A. - Wave , is an impulse or ending diagonal. Guidelines - Waves A and , are usually impulses. - Wave , often e.uals wave A and t erefore ends almost always beyond t e end of Wave A. - Wave - usually retra#es between 3) and 5* + of wave A - A line drawn between t e ends of waves A and , is often parallel to a line drawn between t e starts of wave A and ,. +lat (3-3-5)

Rules - A flat #omprises t ree waves (A---,). - Wave - retra#es at least /* + of wave A. - Wave , is an impulse or ending diagonal. Guidelines - Wave - usually retra#es between 1** and 13) + of wave A. - Wave , is usually 1** to 1(2 + as long as wave A. - Wave , usually ends beyond t e end of wave A. ,rian&le (3-3-3-3-3) Rules - A triangle subdivides into five waves (A---,-0-1)" w ereof at least four of t em are !ig!ags.

Contracting Triangle

Rules - Waves ," 0 and 1 never move beyond t e end of t e pre#eding same-dire#tional wave. - A line drawn between t e ends of waves - and 0 #onverges wit a line drawn between t e ends of waves A and ,. Guidelines - W en wave - ends beyond t e start of wave A it&s #alled a running triangle (about 4* + of all triangles). Barrier Triangle

Rules - Waves - and 0 end at t e same level.

Expanding Triangle

Rules - Waves ," 0 and 1 move beyond t e end of t e previous same-dire#tional wave. - A line #onne#ting t e ends of waves - and 0 diverges from a line drawn between t e ends of waves A and ,. Guidelines - Waves -" , and 0 usually retra#e between 1** and 125 + of t e previous wave.

'om inations Rules - ,ombinations subdivide into two or t ree #orre#tive patterns (labeled W" 2 and 3) t at are separated by one or two #orre#tive patterns in t e opposite dire#tion (labeled 4). Guidelines - W en a !ig!ag or flat seems to be too small to be t e entire #orre#tion" it&s li5ely to get a #ombination.

These guidelines can be used with classic and modern Elliott Wave analysis and also with the Elliott Oscillator in a bar chart of from 100 - 150 bars from Point Zero

A coincidence of Pattern, Price and Time has come together to mark a major pivot that we have identified as the 5th of a 5th wave. The Elliott Wave pattern may not always be the one that we were e pecting. When a fractal occ!rs it means that a wave has ended, ready or not.

The s!spected high or low tick at a major pivot point is the ideal entry point. This entry has the least capital risk beca!se it is closest to the initial stop loss point " the pivot. The trade off is that there will be a higher percentage of losses. The market does not always reverse where we want it to# The pivot point is Point $ero. -ew W.( of the same degree sho!ld overbalance the immediately prior corrective pattern in price range b!t not necessarily in time. The most common %ibonacci relationships between Elliott waves of the same degree.


Will follow either a three wave A"&"' or a five wave imp!lse pattern. W.( that follows an A"&"' is an imp!lse wave. W.( that follows a five wave pattern is W.A of an A"&" ' pattern. )odern Elliott Wave analysis allows for five wave triangle patterns in the W.( position of lesser degree waves. That means that W.*+( can overlap W.(+( witho!t invalidating the pattern as an imp!lse wave. The internal str!ct!re is ,","," ,",. W.( triangles are never allowed as lesser degree waves within a larger degree W.,.

PRICE .se internal swings of lesser degree to project termination of W.( TIME /mp!lse W.( !s!ally overbalances in time the prior co!nter trend swing.


$ig"$ag 0A&'1 most common. Triangles least likely in W.2 position and most likely in W.*.

W.2 most likely to be more PRICE than 534 in time of W.(. 6 534 7 89.:4 W.( Avoid premat!re entry. Patience re5!ired. TIME 6 534 W.( minim!m Wait for ' wave 6 :24 7 (:24 of completion. The first W.( most likely co!nterswing is likely j!st the A leg of an A&' pattern. )!st not penetrate Point $ero or s!spected change in trend from Point $ero is probably wrong.


.s!ally the longest and W., confirmed when the strongest trending wave of price e treme of W.( is the se5!ence. e ceeded. Price sho!ld not come back and trade W., cannot be the beyond the beginning of shortest wave of a five W.2. wave se5!ence. W., does not have to be longest /f s!spected W., wave b!t it can never be completes five waves of the shortest. This is one of lesser degree and is less the very few ;!les of than (334 of W.( Elliott Wave analysis. considers that the s!spected W., is W.' of a W., always synchroni<es corrective pattern and not with an =scillator an imp!lse wave. e treme. The =scillator e treme !s!ally occ!rs =nce W., e ceeds (334 before the price e treme. of W.( look for price to reach and probably e ceed (:24 of W.( >ook for termination conditions when W., e ceeds 2:24 e pansion of W.( or *2*4 retracement of W.2

PRICE W., (:24 " 2:24 of W.( W., (:24 " 2:24 of W.2 TIME W., almost always longer in time than W.( W., often e5!al in time to complete W.3 thro!gh W.2 se5!ence.


/f W.2 was an A&' then W.* will probably be comple and vica versa. This is the principle of alternation.

Price e treme often occ!rs before the termination of the W.* pattern. /n comple waves Time factors sho!ld be the primary consideration.

>ook for minim!m of three fractals in lower time /f Wave * has e ceed frame and minim!m price 6534 of Wave ,, the relationship of :24 to W.2 possibility of a 5th wave fail!re is increased. W.* sho!ld not penetrate W.(. A W.* close into W.( The =scillator will cross invalidates the W.5 set!p. the <ero line two times This is a ;!le. d!ring W.*. %irst against the direction of W., and then in the direction of W., to signal that W.* has f!lfilled minim!m re5!irements for completion.

PRICE 7 534 of W., W.* 38% W., common W.*+W., 7 W.2+W( on percentage basis W.* :24 100% (:24 W.2 W.* 6 2,.:4 7 534 W.3 " W., TIME W.* most often related to W., or W.3 " W., =ften longer in time than W., ? W.3 " W., W.* (,94 " (:24 of Parallel Projection of ends of W.( " W., meas!red from beginning of W.2 PRICE W.5 @ :24 100% (:24 W.( /f W., e tended W.5@ :24 or ,94 of W. 3" , W.5@(284, 162%, 2334, 2:24 W.* TIME W.5 6 W.* if W.* is a simple A&' W.5 7 W.* if W.* is comple


>ook for termination when W.5 has completed at least five fractals in lower time frame and is in a coincidence of Price and Time.

When the e treme of Wave , is e ceeded the ma im!m stop loss sho!ld be raised to Wave *.

When fo!r fractals are in place for Wave 5 trailing W.5 has made new price stops sho!ld be moved e treme and price and the very close to the market. =scillator are diverged. /f Wave * has e ceed 6534 of Wave ,, the possibility of a 5th wave fail!re is increased.


.s!ally a five wave pattern b!t can be three. Aee W.( description for the imp!lsive triangle pattern that can also occ!r as a W.A .s!ally a three wave pattern.

'a!tion re5!ired after first PRICE three waves complete. &etween ,94 " 534 )ay be only , of 5. of prior W.5 Ass!me the first five wave TIME str!ct!re is the W.A of an -?A A"&"' pattern. Wait for at least a 534 retracement of related W.A before entering a trade PRICE 6 534 7 89.:4 of W.A TIME 6 534 7 (334 of W.A time



'lassically W.' is a five wave pattern.

/f W.'. e ceed (:24 of W.A the labeling is probably wrong. The c!rrent pattern is probably imp!lsive.

PRICE W.'. !s!ally :24 100% (:24 of W.A W.' (:24 2334 2:24 of W.& W.'. rarely 6 2:24 W.& TIME .se Time g!idelines for complete A"&"' corrective pattern in W.2 or W.*.


Related Interests