Elliott Rules must be obeyed in every detail for a pattern to qualify as an Elliott Pattern (or wave). However, the Guidelines do not have to be obeyed. The more Guidelines obeyed by an Elliott pattern, the higher its rating or probability of being correct.
Impulse Rules:
An Impulse is a five Wave pattern labeled 1-2-3-4-5 moving in the direction of the larger trend. It is the most common Elliott Wave pattern.
Wave 1 must be an Impulse or a Leading Diagonal.
Wave 2 may be any corrective pattern except a Triangle.
No part of Wave 2 can more than retrace Wave 1.
Wave 2 must retrace Wave 1 by a minimum of 20%.
The maximum time for Wave 2 is nine times Wave 1.
Wave 3 must be an Impulse.
Wave 3 must be longer than Wave 2 in gross distance by price.
The gross price movement of Wave 2 must be greater than either Wave 2 of Wave 1 or Wave 4 of Wave 1. The gross price movement of Wave 2 must also be greater than either Wave 2 of Wave 3 or Wave 4 of Wave 3. Wave 2 must also be greater than 61.8% of the gross movement of each of the above 4 sub-Waves.
Wave 3 and Wave 1 cannot both have 5th Wave failures. (A Failure is an impulsive Wave where Wave 5 is shorter than Wave 4 by price.)
Wave 3 cannot be less than 1/3 of Wave 1 by price.
Wave 3 cannot be more than 7 times Wave 1 by price.
Although there is no minimum time constraint for Wave 3, its absolute maximum time limit is 7 times Wave 1.
Wave 4 can be any corrective pattern.
Waves 1, 2 and 4 cannot overlap except by 15% of Wave 2 with leveraged securities, and then only for a maximum of less than two days.
The gross price movement of Wave 4 must be greater than either the gross movement of Wave 2 of 3 or Wave 4 of 3. The gross price movement of Wave 4 must also be greater than either the gross movement of Wave 2 of 5 or Wave 4 of 5. The gross movement by price of Wave 4 must also be greater than 61.8% of the gross movement of each of these four subwaves.
The gross movement by price of Wave 4 must be greater than 1/3 of the gross movement of Wave 2 by both price and percentage movement.
The gross movement by price for Wave 4 must be less than three times the gross movement of Wave 2 by both price and percentage movement.
Wave 3 and Wave 4 cannot both be failures. (A Failure is an impulsive Wave where Wave 5 is shorter than Wave 4 by price.)
Although Wave 4 has no minimum time constraint, the maximum time for Wave 4 is twice the time taken by Wave 3.
Wave 5 must be an Impulse or an Ending Diagonal. However, if Wave 5 is longer than Wave 3 by price, then Wave 5 must be an Impulse.
Wave 5 must move by price more than 70% of Wave 4. (This is not gross movement. Only consider the end points of both Waves.)
Wave 3 must never be shorter than both Wave 1 and 5, by either price distance or percentage price movement.
If Wave 5 is truncated, or contains an Impulse that is truncated, then neither Wave 3 nor Wave 4 can contain a subwave that is truncated. (A truncated pattern is where Wave 5 is shorter than Wave 4. This is also known as a failure.)
The maximum movement of Wave 5 is six times Wave 3 in both price and time.
Wave 5 has no minimum time constraint.
Impulse Guidelines:
Wave 1 can be a Leading Diagonal, but this is rare.
Wave 2 is usually a Zigzag based pattern.
Wave 2 usually takes a small amount of time compared to Wave 1. However, Wave 2 is usually takes more than 10% of the time taken by Wave 1.
Wave 2 generally retraces more than 30% of Wave 1 including internal data points.
Wave 2 will usually retraces less than 80% of Wave 1 .
The most likely retracement for Wave 2 is 50% or 61.8% of Wave 1.
The gross price movement of Wave 2 should be greater than the gross price movement of Waves 2 of 1, 4 of 1, 2 of 3 and 4 of 3.
If the gross movement of Wave 2 is between 33% and 40.3% retracement of Wave 1, it is most likely complete.
If the gross movement of Wave 2 has retraced to end of previous Wave 4 of 1, then it is most likely complete.
It is unlikely that Wave 3 will be shorter than Wave 1 by price.
The most likely price range for Wave 3 is between 1.5 and 3.5 times the price range of Wave 1.
Most likely range in time for Wave 3 is between 1 and 4 times the time taken by Wave 1.
Wave 4 is rarely a Zigzag based correction.
It is common for both Waves 4 & 2 to have approximately the same price movement.
Wave 4 will most often retrace more than 20% of Wave 3, including internal points.
Wave 4 will very often retrace about 38.2% of Wave 3.
Wave 4 does not often retrace Wave 3 by more than 50%.
Wave 4 will often retrace into the price territory of previous Wave 4 of Wave 1.
Wave 4 will most often retrace to the end of the previous Wave 4 of one lesser degree.
Waves 2 & 4 usually alternate between Zigzag and Flat. The other alternation is between a Triangle and a Flat.
Leveraged markets may at times overlap by up to 15% of Wave 2 by price.
The gross price movement of Wave 4 should be greater than the gross price movement of Waves 2 of 3, 4 of 3, 2 of 5 and 4 of 5.
Expect the time taken by Wave 4 to be between 100% - 270% of the time taken by Wave 2.
Wave 5 will usually move beyond the end of Wave 3.
When Wave 5 is extended (more than 161.8% longer than both Waves 1 and 3) a point within Wave 4 will often divide the entire Impulse Wave by 1.618.
If Wave 5 is extended (more than 161.8% longer than both Waves 1 and 3), it is common for its price length to be about 161.8% of the gross price length between the beginning of Wave 1 to end of Wave 3.
It is unusual for Wave 5 to travel a greater price or time percentage than Wave 3 traveled in its entirety.
The most likely price targets for Wave 5 are: 61.8% of Wave 1, 100% of Wave 1, 161.8% of Wave 1, 161.8% of the length from the beginning of Wave 1 to end of Wave 3.
If Wave 3 is about equal to 161.8% of Wave 1 by price, the most likely time for Wave 5 is about equal to the time taken by Wave 1.
One of the Impulse Waves (Waves 1, 3 or 5) generally extends (at least 162% times the next longest Impulse Wave).
The most likely Wave to extend is the 3rd Wave of an Impulse. However, in leveraged funds when the Impulse is rising and the degree is Primary or above, the most likely Wave to extend is Wave 5.
A non-extended 5th Wave of less than Primary degree usually has a lower peak volume than a third Wave. However, when the 5th Wave extends (less than Primary degree), Wave 5 has usually shows more volume.
Wave 5, when complete, usually has a lesser slope than Wave 3. However, in leveraged securities when the Impulse is rising and the degree is Primary or above, this is not usually the case.
Wave 5 is usually less than 4 times length of Wave 3 by time.
ZigZag Rules: