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Principle of Elliot wave explained

Basic Sequence

There are two types of waves: impulse and corrective. Impulse waves move in the direction of the larger degree wave. When the larger degree wave is up, advancing waves are impulsive and declining waves are corrective. When the larger degree wave is down, impulse waves are down and corrective waves are up. Impulse waves, also called motive waves, move with the bigger trend or larger degree wave. Corrective waves move against the larger degree wave.

Three Guidelines

There are numerous guidelines, but this article will focus on three key guidelines. In contrast to rules, guidelines should hold true most of the time, not necessarily all of the time.

Guideline 1: When Wave 3 is the longest impulse wave, Wave 5 will approximately equal Wave 1.

Guideline 2: The forms for Wave 2 and Wave 4 will alternate. If Wave 2 is a sharp correction, Wave 4 will be a flat correction. If Wave 2 is flat, Wave 4 will be sharp.

Guideline 3: After a 5-wave impulse advance, corrections (abc) usually end in the area of prior Wave 4 lows.

Three Rules

Believe it or not, there are only three rules when it comes to interpreting Elliott Wave. There are many guidelines, but only three HARD rules. These are unbreakable. Guidelines, on the other hand, are bendable and subject to interpretation. Furthermore, these rules only apply to a 5-wave impulse sequence. Correction, which are much more complicated, are given more leeway when it comes to interpretation.

Rule 1: Wave 2 cannot retrace more than 100% of Wave 1.

Rule 2: Wave 3 can never be the shortest of the three impulse waves.

Rule 3: Wave 4 can never overlap Wave 1.

Corrective wave of expected move

Wave B

Usually 50% of Wave A Should not exceed 75% of Wave A

Wave C

either 1 x Wave A or 1.62 x Wave A or 2.62 x Wave A

Wave A is expected to test the level of 1.5670 which is 161.8% retracement of 1.6260 to 1.5890 and also the top of wave III where short term support is seen and will enter in wave B as a profit booking. According to the above rule we can expect 50% retracement of the fall from 1.6255 to 1.5670 = 0.0585 / 2 = 0.0292 points. From the bottom of 1.5670 50% rise can test 1.5962 level and this is expected to be the top of wave B and will enter in wave C again in the corrective wave. We can expect wave C to fall either by 100% or b 161.8% wave A, calculating 100% fall after wave B will bring to 1.5377 as initial target and then further if we take 161.8% fall from wave B will bring to 1.5020 level on lower side.