Elliott Wave Guidelines Explain with Detail

Elliott & apos; Guidelines

Elliott also noted some guidelines that he would not count as rules but noticed a high ratio of instances where these factors occurred. They are helpful hints in outlining high-probability outcomes in certain circumstances, ones I have found exceptionally useful in my own analysis and which indeed blend in well with my own views on price structure.

Alternation

Elliott noticed a strong tendency for corrective waves within an impulsive structure to alternate in terms of depth and complexity. I shall cover corrective waves briefly at this point.

If Wave 2 develops in a simple manner (an ABC Zigzag move) then Wave 4 will tend to be complex (Triangle, Flat, Expanded Flat, or Triple Three). If Wave 2 develops in a complex manner then Wave 4 tends to be a simple ABC move.

In addition, alternation covers the depth of the retracements in Waves 2 and 4. If Wave 2 was shallow then Wave 4 will be deep, and vice versa (as shown in Figure 1.14).

Figure 1.14 Deep Wave (2) and Shallow Wave (4) Demonstrating Alternation in Five-Minute GBPUSD

In this example of a five-wave decline in the five-minute GBPUSD chart, Wave (2) retraced Wave (1) by 74.8%. Conversely, Wave (4) retraced only 18.4% before seeing a Diagonal Triangle decline in Wave (5).

B Waves

The second guideline Elliott noticed was that after the completion of a three- wave move there is a tendency for price to reverse to the area of the preceding Wave B (as shown in Figure 1.15). This may prove temporary or a long period depending on which part of the wave structure it occurred in.

Figure 1.15 Following the Completion of an ABC Move Lower Price Retraces to the Prior Wave (B)

This chart is one such example of an event that occurs so frequently that it provides an excellent first target in a retracement.