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 the 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 zigzag, flat or combination.
- Wave 2 never moves beyond the start of wave 1.
- Wave 4 subidivides into a zigzag, flat, triangle or combination.
- Wave 4 never moves into the territory of wave 1.

Guidelines
- Wave 1, 3 or 5 is usually extended, while wave 1 is the least commonly extended
wave.
- If wave 3 is extended, it’s common for subwave 3 of 3 to extend as well (the same
applies for wave 1 and 5).
- Subwave 3 of 3 almost always has the steepest slope within the parent impulse.
- Wave 5 often ends when hitting a line drawn from the end of wave 1 or 3 that is
parallel to a line drawn between the ends of waves 2 and 4.
- Wave 5 normally ends beyond the end of wave 3, if not it’s called a truncation.
- If wave 2 was a sharp correction, wave 4 will almost always be a sideways
correction and vice versa (Alternation).
- Wave 2 is usually a zigzag or zigzag combination.
- Wave 4 is ususally a flat, triangle or combination thereof.
- Wave 4 usually ends within the price territory of the fourth wave of wave 3.

Diagonal (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 the end of wave 2.
- Wave 4 always moves into the price territory of wave 1.
- In the contracting form, wave 5 is shorter than wave 3, wave 3 than wave 1 and
wave 4 than wave 2.
- A line drawn between the ends of waves 2 and 4 converges towards (in the
contracting form) or diverges from (in the expanding form) a line drawn between the
ends of waves 1 and 3.
Guidelines
- Waves 2 and 4 usually retrace 62 to 80 % of the previous wave.

Ending Diagonal (3-3-3-3-3)

Rules
- An ending diagonal is always a wave 5 of an impulse or a wave C of a zigzag or flat.
- All waves subdivide into zigzags.
Guidelines
- Wave 5 usually end beyond the end of wave 3 (if not it’s called truncation).
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 zigzag.
- Waves 2 and 4 subdivide into zigzags.
- Wave 5 ends beyond the end of wave 3.
Guidelines
- Waves 1, 3 and 5 are usually zigzags but can also be impulses.
Corrective Waves
Zigzag (5-3-5)

Rules
- A zigzag comprises three waves (A-B-C).
- Wave A is an impulse or leading diagonal.
- Wave B can be any corrective pattern.
- Wave B never goes beyond the start of Wave A.
- Wave C is an impulse or ending diagonal.
Guidelines
- Waves A and C are usually impulses.
- Wave C often equals wave A and therefore ends almost always beyond the end of
Wave A.
- Wave B usually retraces between 38 and 50 % of wave A
- A line drawn between the ends of waves A and C is often parallel to a line drawn
between the starts of wave A and C.
Flat (3-3-5)

Rules
- A flat comprises three waves (A-B-C).
- Wave B retraces at least 70 % of wave A.
- Wave C is an impulse or ending diagonal.
Guidelines
- Wave B usually retraces between 100 and 138 % of wave A.
- Wave C is usually 100 to 162 % as long as wave A.
- Wave C usually ends beyond the end of wave A.

Triangle (3-3-3-3-3)
Rules
- A triangle subdivides into five waves (A-B-C-D-E), whereof at least four of them
are zigzags.
Contracting Triangle

Rules
- Waves C, D and E never move beyond the end of the preceding same-directional
wave.
- A line drawn between the ends of waves B and D converges with a line drawn
between the ends of waves A and C.
Guidelines
- When wave B ends beyond the start of wave A it’s called a running triangle (about
40 % of all triangles).
Barrier Triangle

Rules
- Waves B and D end at the same level.
Expanding Triangle

Rules
- Waves C, D and E move beyond the end of the previous same-directional wave.
- A line connecting the ends of waves B and D diverges from a line drawn between
the ends of waves A and C.
Guidelines
- Waves B, C and D usually retrace between 100 and 125 % of the previous wave.

Combinations
Rules
- Combinations subdivide into two or three corrective patterns (labeled W, Y and Z)
that are separated by one or two corrective patterns in the opposite direction (labeled
X).
Guidelines
- When a zigzag or flat seems to be too small to be the entire correction, it’s likely to
get a combination.

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.
WAVE CONDITIONS
A coincidence of Pattern,
POINT Price and Time has come
Z together to mark a major
E pivot that we have
identified as the 5th of a 5th
R wave. The Elliott Wave
O pattern may not always be
the one that we were
expecting. When a fractal
occurs it means that a
wave has ended, ready or
not.
Will follow either a three
W.1 wave A-B-C or a five
wave impulse pattern.
W.1 that follows an A-B-C
is an impulse wave. W.1
that follows a five wave
pattern is W.A of an A-B-
C pattern.
Modern Elliott Wave
analysis allows for five
wave triangle patterns in
the W.1 position of lesser
degree waves. That
means that W.4:1 can
overlap W.1:1 without
invalidating the pattern as
an impulse wave. The
internal structure is 3-3-3-
3-3.
W.1 triangles are never
allowed as lesser degree
waves within a larger
degree W.3.
IMPLICATIONS FIBONACCI
The suspected high or low
tick at a major pivot point
is the ideal entry point.
This entry has the least
capital risk because 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 Zero.
New W.1 of the same
degree should
overbalance the
immediately prior
corrective pattern in price
range but not necessarily
in time.
The most common
Fibonacci
relationships between
Elliott waves of the
same degree.
PRICE
Use internal swings
of lesser degree to
project termination of
W.1
TIME
Impulse W.1 usually
overbalances in time
the prior counter
trend swing.
 Zig-Zag (ABC) most W.2 most likely to be more PRICE
W.2 common. than 50% in time of W.1. > 50% < 78.6% W.1
Avoid premature entry.
Triangles least likely in Patience required. TIME
W.2 position and most > 50% W.1 minimum
likely in W.4. Wait for C wave > 62% < 162% of
completion. The first W.1 most likely
counterswing is likely just
the A leg of an ABC
pattern.

Must not penetrate Point

Zero or suspected change
in trend from Point Zero is
probably wrong.

Usually the longest and W.3 confirmed when the PRICE

W.3 strongest trending wave of price extreme of W.1 is W.3 162% - 262% of
the sequence. exceeded. Price should W.1
not come back and trade
W.3 cannot be the beyond the beginning of W.3 162% - 262% of
shortest wave of a five W.2. W.2
wave sequence. W.3 does
not have to be longest If suspected W.3 TIME
wave but it can never be completes five waves of W.3 almost always
the shortest. This is one of lesser degree and is less longer in time than
the very few Rules of than 100% of W.1 W.1
Elliott Wave analysis. considers that the
suspected W.3 is W.C of a W.3 often equal in
W.3 always synchronizes corrective pattern and not time to complete W.0
with an Oscillator an impulse wave. through W.2
extreme. The Oscillator sequence.
extreme usually occurs Once W.3 exceeds 100%
before the price extreme. of W.1 look for price to
reach and probably
exceed 162% of W.1

Look for termination

conditions when W.3
exceeds 262% expansion
of W.1 or 424%
retracement of W.2
 If W.2 was an ABC then Price extreme often PRICE
W.4 W.4 will probably be occurs before the < 50% of W.3
complex and vica versa. termination of the W.4 W.4 38% W.3
This is the principle of pattern. In complex waves common
alternation. Time factors should be the W.4:W.3 < W.2:W1
primary consideration. on percentage basis
Look for minimum of three W.4 62% 100%
fractals in lower time If Wave 4 has exceed 162% W.2
frame and minimum price >50% of Wave 3, the W.4 > 23.6% < 50%
relationship of 62% to W.2 possibility of a 5th wave W.0 - W.3
failure is increased.
W.4 should not penetrate TIME
W.1. A W.4 close into W.1 The Oscillator will cross W.4 most often
invalidates the W.5 setup. the zero line two times related to W.3 or W.0
This is a Rule. during W.4. First against - W.3
the direction of W.3 and Often longer in time
then in the direction of than W.3 / W.0 - W.3
W.3 to signal that W.4 has W.4 138% - 162% of
fulfilled minimum Parallel Projection of
requirements for ends of W.1 - W.3
completion. measured from
beginning of W.2

Look for termination when When the extreme of PRICE

W.5 W.5 has completed at Wave 3 is exceeded the W.5 = 62% 100%
least five fractals in lower maximum stop loss should 162% W.1
time frame and is in a be raised to Wave 4. If W.3 extended W.5=
coincidence of Price and 62% or 38% of W. 0-
Time. When four fractals are in 3
place for Wave 5 trailing W.5=127%, 162%,
W.5 has made new price stops should be moved 200%, 262% W.4
extreme and price and the very close to the market.
Oscillator are diverged. TIME
If Wave 4 has exceed W.5 > W.4 if W.4 is a
>50% of Wave 3, the simple ABC
possibility of a 5th wave W.5 < W.4 if W.4 is
failure is increased. complex
 Usually a five wave Caution required after first PRICE
W.A pattern but can be three. three waves complete. Between 38% - 50%
May be only 3 of 5. of prior W.5
See W.1 description for
the impulsive triangle Assume the first five wave TIME
pattern that can also structure is the W.A of an N/A
occur as a W.A A-B-C pattern.

Usually a three wave Wait for at least a 50% PRICE

W.B pattern. retracement of related > 50% < 78.6% of
W.A before entering a W.A
trade
TIME
> 50% < 100% of
W.A time

Classically W.C is a five If W.C. exceed 162% of PRICE

W.C wave pattern. W.A the labeling is W.C. usually 62%
probably wrong. The 100% 162% of W.A
current pattern is probably
impulsive. W.C 162% 200%
262% of W.B

W.C. rarely > 262%

W.B

TIME
Use Time guidelines
for complete A-B-C
corrective pattern in
W.2 or W.4.

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