Every complete Elliott Wave move consists of 5 impulsive waves in the direction of the

main trend followed by 3 corrective waves (a so called "5-3 move").

This rhythm of 5-3 move remain true for any time frame.

This is an Uptrend, where:

1-2-3-4-5 - is an impulsive move, where waves 1-3-5 are Impulsive waves, 2-4 are
corrective waves.

A-B-C - is a corrective move, where A-C are impulsive waves, B is corrective wave

But, what does this all impulsive/corrective thing mean..?

To understand we have to go back to the mass psychology phenomenon, and here is
how it works according to Elliott:

Wave 1 - represents an impulsive optimism among the first group of Buyers - they
have found a good reason to Buy (for technical or fundamental reasons), and so they
begin pushing the market higher.
Wave 2 - the impulse fades out as the original Buyers begin to close trades with
profits, while other investors who missed the train, stay outside waiting for a new
opportunity.

Wave 3 - usually the longest and the strongest wave. Every investor who wanted to
Buy (those who missed Wave 1 and those who didn't) will start Buying now. In addition
to that, in the middle of the wave 3 those who weren't convinced about an Uptrend will
be convinced by now. Altogether this will bring a large acceleration to the main trend

Wave 4 - sooner or later it's time to take profits, an impulsive move starts to fade
again. However, the correction will be shallow as there are still many Buyers who want
to join the trend.

Wave 5 - and so the uptrend restores, but the markets are already overbought and it
becomes obvious that a reversal is due. The end of wave 5 is often marked by oversold
(in an uptrend) markets and divergence.

Waves A, B, C - these waves develop in the counter-trend style to the major trend. At
this point a new trend may develop, but may also not, and the new sequence of 1-2-3-
4-5-A-B-C waves may begin.

Degrees of Elliott Waves and cycles

It would be great of we could take those 5-3 waves and go trading, but on practice
when we look at price charts there are no such smooth 5-3 waves, instead,it'll look like
a maze of up and down swings. Where to go from here?

Elliott Wave theory says that every wave has smaller waves within it.
And so, if we now view every wave as a series of smaller waves, the picture will look
like this:
Elliott wave cycles

According to Elliott every complete set of 1-2-3-4-5-A-B-C waves becomes a wave of a

larger degree ( a wave of a larger cycle).

Bellow is the table with all known Elliott Wave cycles and their corresponding styles of
wave numeration.
Note: online trading platforms due to their graphical limitations won't be capable of
drawing circles around your wave numbers, so instead of circles traders use square
brackets [ ] to label waves: [1], [2] etc.

Impulsive Wave Patterns

1. Extended waves - waves that is elongated in nature with smaller sub-waves that
are distinctively visible.
Among impulsive waves 1, 3 and 5 only one wave should become an extended wave.
2. Diagonal triangle - applies to wave 5, which is prone to producing a weaker
move/wave and as a result the sub-waves within it can evolve into a diagonal triangle.

Corrective Wave patterns

Corrective Wave forms are more complicated in nature. They we can be categorized
into six major forms:
Zig-Zag:
an ABC pattern composed of 5-3-5 sequence, where wave B doesn't exceed the start of
wave A while Wave C moves far beyond the end of wave A.

Flat:
an ABC pattern composed of 3-3-5 sequence, where all three waves are of the same
lenght.

Irregular:
an ABC pattern composed of 3-3-5 sequence, where wave B exceeds the start of wave
A while wave C moves close to (or beyond) the end of wave A. Horizontal Triangle:
5-wave triangular pattern composed of 3-3-3-3-3 progressively smaller waves. Usually
such triangles happen in the 4th wave in the impulsive sequence.

Double Three:
an ABC-x-ABC pattern composed of any two patterns (zigzags, flats, irregulars or
triangles) and linked by x wave.

Double Three wave examples:

Triple Three:
an ABC-x-ABC-x-ABC pattern composed of any three patters (zigzags, flats, irregulars
or triangles) and linked by two x waves.

Triple Three wave example:

Double Three and Triple Three are very complex corrective patterns, so don't be
discouraged if you can't count them accurately. Be sure to use additional technical
analysis (or indicators) if your waves aren't lining up for the moment.
Always seek for the clarity in any Elliott wave pattern before pulling a trigger, but don't
get stuck if the patterns don't emerge, instead use another other analysis methods that
can offer a better edge in challenging market conditions.

Note: In all ABC corrections (ZigZag, Flat, Irregular, Double Three, Triple Three) Wave C
consists of a 5-wave pattern. This knowledge is very useful when planning entries after
wave C on an new impulsive wave.

The 3 main rules of Elliott Wave count

1. Wave 2 should not break below the beginning of Wave 1.

2. Wave 3 should not be the shortest wave among Waves 1, 3 and 5.
3. Wave 4 should not overlap with Wave 1.

These are the only 3 unbreakable rules that can't be altered. The rest of the Rules, and
there is a considerable number of them, can have alterations, substitutions etc, which
again explains the fact that markets can't be totally predictable.

4. The Principle of Alteration

Waves 2 and 4 within an Impulsive wave will unfold in different forms: if wave 2 is a
simple ABC form ( zigzag), the 4th wave is likely to be a complex wave (triangle,
double three etc.)

Over years Elliott followers tried to collect the rules and improve the interpretation of
the waves. As a result, today we can find hundreds of new Elliott wave rules and
guidelines, which try to cover every aspect of the price behaviour.

Below is the most detailed Guidelines we've ever come across:

http://forex-indicators.net/files/indicators/CyclePro_Elliott_Wave_Rules.pdf

But is it possible to put every price move to the rules? Will such classification be worth
studying, or will it simply be a description of every possibility in the market, which we
don't need to read about to know that it exists? It's up to you to decide.

Just keep in mind that Elliott wave trading is not about being right and knowing the
next move every single time.

Elliotticians make mistakes and they make a lot of them, even most experienced
professionals like Robert Prechter aren't correct every time*. What's important is that
they are ability to accept being 100% wrong and re-do the analysis while accepting
losses when necessary.
Elliott Waves - the Trading Plan
the step-by-step guide to planning your trades with Elliot waves:

Step 1
A downtrend ends with Wave 5.
Besides the end of the wave 5 in a downtrend, we also want to see the first indication
of a trend reversal - an establishment of a new Higher High

Step 2
Once a new Higher high is found, its the first opportunity to plan an early entry with a
new trend. Use Fibonacci retracement tool to find price retracement levels (38.2%,
50% and 61.8%).
These levels will give an Entry zone area.
Step 3
Once a Buy order is open, place an initial Stop order below the beginning of the Wave
1.
If price goes past Fibonacci levels resulting in a wrong trade, accept the Loss and at
that point place a Sell order with a profit target set cover up the previous loss.

If price reverses at Fib levels as expected, set Profit target #1 at the first resistance
level, which is the top of Wave 1. Close 1/2 of the position at that point.

Why to take profits this early? Because if the market decides that it's not the time yet
for an uptrend (double top and reverse), we'll have some reward left.

When the TP #1 is reached, move the Stop order to break even.

Step 4
The key point area consists of 2 considerable points:

1. When the length of the new wave matches the length of Wave 1
(Length 1 = Length 2) - we have reached a new resistance level

2. When the market finds the upper line of a channel

(built based on the initial trend line) - we have reached a new resistance level.

Those resistance levels if passed successfully, present an immediate opportunity to add

1 more Buy order to an existing trade. As we know Wave #3 is the strongest

wave, so that's a good opportunity to make more profits.

Step 5
Using Fibonacci Expansion tool (Fibonaci click-by-click guide) find the Profit target
at 161.8% area.

At this point we want to close all remaining trades. Why? Wave 3 was the strongest
most profitable Wave. Wave 4 will be slower and will take

longer time to complete, while Wave 5 may not be that high after all, so the time spent
for waiting & hoping is not fully justified).
Step 6
If you want to try counter-trend trading with Wave 4, your profit target for a new Sell
position will be around 38.2% - 50% Fib retracement level, as well as around the lower
band of a new channel (see example below).
Step 7
Wave 5 is the last point to take profits and close any remaining positions.

Same rules (which you've hopefully already learned) apply for finding the best zones for
profit taking:

- draw a channel (Tip: if Wave 3 is too steep, instead of drawing a parallel line thorough
Wave 3, draw it through W1. The line in this case will cut through candlesticks of Wave
3, but it'll provide a valuable target for Wave 5).

- close 1/2 position at the top of Wave 3 (resistance and possible double top - not
uncommon for Wave 5).
- use 61.8% Fibonacci Expansion as the final TP
Step 8
Immediately upon closing all Buy orders & upon favorable indications of an immediate
reversal (shift down to smaller time frames to find signs of reversal) consider Selling.
Place the Stop order not too far from the entry.

Another selling opportunity should be found at Wave b - around 32.8%-50% Fib

retracement level.
Measure the length of Wave a to project the target for Wave c. Wave a = Wave c. Take
profits and close all trading positions.
Elliott Waves and Fibonacci

Fibonacci numbers play an huge role in Elliott Wave trading.

Elliott didn’t discover the Fibonacci relationships himself, but this was brought to
author's attention by Charles J. Collins who had published Elliott's "The Wave Principle"
and helped introduce Elliott's theory to Wall Street.

Using known Fibonacci ratios (38.2%, 50%, 61.8%, 161.8% and so on) traders can
project the length of waves, the depth of corrections, move extensions etc.
 Wave 1
The first impulsive wave, which Elliott traders don't use for trading, but rather for
analysis of the wave 2.

Wave 2
Wave 2 should not retrace below the beginning of wave 1.
Normally the retracement is from 50% to 61.8% of Wave 1. At times it can go below
the 61.8%

due to the fact that wave 2 retracement is quite aggressive since many traders don't
acknowledge the change in the main trend yet.
The minimum retracement to expect is 38.2%

Wave 3
Wave 3 is never be the shortest among waves 1, 3 and 5.
At the very least it should be equal to wave 1 in length.
Wave 3 as the longest wave normally tend to be 161.8% of wave 1.

If goes beyond 161% - the next target is 261.8%, and rarely extended target - 425%
of wave 1.
 Wave 4
Wave 4 is one of the shallowest waves: at this stage many traders take profits, while
there are few others who are willing to trade counter-trend.
It often retraces slowly for an extended period of time and reach normally only 38.2%
of wave 3.

It rarely retraces to 50% of wave 3.

Wave 5
Wave 5 should move at least 61.8% of the length of wave 1.
If wave 3 is greater than 161.8% of wave 1 in length, the targets for wave 5 will be
100% of Wave 1,
or 161.8% of wave 1, rarely 261.8% of wave 1.
If wave 3 is less than 161.8% of wave 1 in length, wave 5 will often be extended with
targets of:
61.8% of wave 1 + wave 3
100% of wave 1 + wave 3
or 161.8% of wave 1 + wave 3

Tips: Fibonacci projections - completion of wave 5

As you can see, as soon as wave 1 is completed we can already make a projection of
the first possible target for wave 5.
To do so we multiply the height of wave 1 by 161.8% and project the result from the
end of wave one.

Later when wave 3 is completed we can add yet another projection of the second
possible price target for wave 5. To do so we have to examine wave 3: if wave 3 is
greater
than 161.8% of wave 1, the targets for wave 5 will be 100% of Wave 1, or 161.8% of
wave 1. If wave 3 is less than 161.8% of wave 1 in length, wave 5 will often be
extended with targets of at least 61.8% of wave 1 + wave 3.

In the end, the closer are the results for wave 5 targets calculated by different methods
the higher will be the chances to see a trend reversal in between those levels.

Elliott Waves and Bollinger bands

Indicators required: Bollinger bands (period 25, shift 2)

Time frame: could be any, suggested 1 hour, 4 hour or daily.

The concept lies in easy spotting & counting Impulsive and Corrective Elliott waves
with the help of Bollinger bands channel.

Rules for an Uptrend:

1. As long as the price continuously touches the Upper Bollinger band, the Impulsive
wave (1, 3 or 5) is in progress.
2. If price retraces down approaching lower Bollinger band - the corrective wave is in
progress.
3. Once the price touches the lower Bollinger band - the correction will most likely be
over and a new wave should follow.

Rules for a Downtrend:

1. As long as the price continuously touches the Lower Bollinger band, the Impulsive
wave (1, 3 or 5) is in progress. 2. If price retraces up approaching the upper band - the
corrective wave is in progress.
3. Once the price touches the upper band - the corrective wave will most likely be over
and a new wave should follow.
Chart tip: To make the middle Bollinger band line invisible in MT4, draw additional
bands (period 22, shift 3) and match their color to your chart background color.

Summary: Bollinger bands indicator can help with Elliott Wave count: to find impulsive
waves, as well as search for patterns in during corrective waves, however, it's not
recommended to build trading

solely around the Bollinger bands, as you'll get many losing trades.
Use the method to count Elliott waves, and then apply additional analysis to make
trading decisions.