Mastering Elliott Waves: Key Rules You Can't Ignore

25 Jul

Educational Idea : Understanding Key Principles of Elliott Wave Theory

Introduction

Elliott Wave Theory is a powerful tool used by traders to analyze market cycles and forecast future price movements. Understanding its core principles can help you make more informed trading decisions. In this article, we will delve into three fundamental principles of Elliott Wave Theory that cannot be violated. Remember, this video is purely for educational purposes and not intended as trading advice or tips.

1. Wave 2 Can Never Retrace More Than 100% of Wave 1

The first principle of Elliott Wave Theory is that Wave 2 can never retrace more than 100% of Wave 1. In other words, Wave 2 cannot go below the starting point of Wave 1. If it does, it invalidates the wave count and suggests that the initial impulse wave (Wave 1) was incorrectly identified. This rule ensures that Wave 2 is a correction wave within the larger trend and not a reversal of the trend itself.

Example Illustration:
- If Wave 1 starts at 100 and peaks at 150, Wave 2 can retrace to any level above 100, but not below it.

2. Wave 3 Can Never Be the Shortest Among All Three Impulse Waves (1-3-5)

The second principle states that Wave 3 can never be the shortest among the three impulse waves (Waves 1, 3, and 5). Typically, Wave 3 is the longest and most powerful wave, characterized by strong momentum and volume. If you find that Wave 3 is shorter than either Wave 1 or Wave 5, the wave count is incorrect, and you need to re-evaluate your analysis.

Example Illustration:
- If Wave 1 is 50 points and Wave 3 is only 30 points, while Wave 5 is 40 points, this violates the rule as Wave 3 is the shortest.

3. Wave 4 Cannot Enter the Territory of Wave 1 (Except in Diagonals & Triangles)

The third principle asserts that Wave 4 cannot enter the price territory of Wave 1. This means that the lowest point of Wave 4 should not overlap the highest point of Wave 1. An exception to this rule occurs in diagonal and triangle patterns, where some overlap is permissible. This rule helps maintain the integrity of the impulse wave structure.

Example Illustration:
- If Wave 1 peaks at $150 and Wave 4 retraces to $145, this overlaps and invalidates the wave count unless the pattern is a diagonal or triangle.

Conclusion

By following these principles, you can ensure that your Elliott Wave analysis remains robust and accurate, helping you navigate the complexities of the financial markets with greater confidence. Understanding and applying these key principles of Elliott Wave Theory can significantly enhance your market analysis and trading strategies. Keep these rules in mind as you study and apply Elliott Wave Theory in your trading journey. Remember, this video is purely for educational purposes and not any kind of trading advisory or tips.

This content is for educational purposes only and should not be considered as financial advice. Always do your own research before making any trading decisions.

I am not Sebi registered analyst.
My studies are for educational purpose only.
Please Consult your financial advisor before trading or investing.
I am not responsible for any kinds of your profits and your losses.

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Thanks
RK💕

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