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
ZE together to mark a major
R pivot that we have identified
as the 5th of a 5th wave. The
O
Elliott Wave 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.
Zig-Zag (ABC) most common. W.2 most likely to be more
W.2 than 50% in time of W.1.
IMPLICATIONS
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.
FIBONACCI
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.
PRICE
> 50% < 78.6% W.1
Triangles least likely in W.2
position and most likely in
W.4.
Avoid premature entry.
Patience required. TIME
> 50% W.1 minimum
Wait for C wave completion. > 62% < 162% of W.1
The first counterswing is most likely
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 strongest trending wave of
the sequence.
W.3 cannot be the shortest
wave of a five wave
sequence. W.3 does not
have to be longest wave but
it can never be the shortest.
This is one of the very few
Rules of Elliott Wave
analysis.
W.3 always synchronizes
with an Oscillator extreme.
The Oscillator extreme
usually occurs before the
price extreme.
W.3 confirmed when the
price extreme of W.1 is
exceeded. Price should not
come back and trade beyond
the beginning of W.2.
If suspected W.3 completes
five waves of lesser degree
and is less than 100% of W.1
considers that the suspected
W.3 is W.C of a corrective
pattern and not an impulse
wave.
Once W.3 exceeds 100% of
W.1 look for price to reach
and probably exceed 162%
of W.1
PRICE
W.3 162% - 262% of
W.1
W.3 162% - 262% of
W.2
TIME
W.3 almost always
longer in time than W.1
W.3 often equal in time
to complete W.0
through W.2 sequence.

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 W.4
W.4 will probably be complex
and vica versa. This is the
principle of alternation.
Look for minimum of three
fractals in lower time frame
and minimum price
relationship of 62% to W.2
W.4 should not penetrate
W.1. A W.4 close into W.1
invalidates the W.5 setup.
This is a Rule.
Price extreme often occurs PRICE
before the termination of < 50% of W.3
the W.4 pattern. In complex W.4 38% W.3 common
waves Time factors should W.4:W.3 < W.2:W1 on
be the primary percentage basis
consideration. W.4 62% 100% 162%
W.2
If Wave 4 has exceed >50% W.4 > 23.6% < 50% W.0
of Wave 3, the possibility of - W.3
a 5th wave failure is
increased. TIME
W.4 most often related
The Oscillator will cross the to W.3 or W.0 - W.3
zero line two times during Often longer in time
W.4. First against the than W.3 / W.0 - W.3
direction of W.3 and then in W.4 138% - 162% of
the direction of W.3 to signal Parallel Projection of
that W.4 has fulfilled ends of W.1 - W.3
minimum requirements for measured from
completion. beginning of W.2
 Look for termination when
W.5 W.5 has completed at least
five fractals in lower time
frame and is in a coincidence
of Price and Time.
W.5 has made new price
extreme and price and the
Oscillator are diverged.
When the extreme of Wave PRICE
3 is exceeded the maximum W.5 = 62% 100% 162%
stop loss should be raised to W.1
Wave 4. If W.3 extended W.5=
62% or 38% of W. 0-3
When four fractals are in W.5=127%, 162%,
place for Wave 5 trailing 200%, 262% W.4
stops should be moved very
close to the market. TIME
W.5 > W.4 if W.4 is a
If Wave 4 has exceed >50% simple ABC
of Wave 3, the possibility of W.5 < W.4 if W.4 is
a 5th wave failure is complex
increased.

Usually a five wave pattern Caution required after first PRICE

W.A but can be three. three waves complete. May Between 38% - 50% of
be only 3 of 5. prior W.5
See W.1 description for the
impulsive triangle pattern Assume the first five wave TIME
that can also occur as a W.A structure is the W.A of an A- N/A
B-C pattern.

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

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

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

W.C pattern. the labeling is probably W.C. usually 62% 100%
wrong. The current pattern 162% of W.A
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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