Elliott grabbed his Fibonacci drawing tool. He dragged it from the start of the move to the peak. He looked at the bottom of the current consolidation. It was sitting right on the 38.2% retracement level—a common resting place for a Wave 2 of a larger degree, or a Wave B of a correction.
: It is usually the longest wave, but it strictly cannot be the shortest.
The final push. Overvaluation occurs amid extreme retail optimism. The Corrective Phase (3-Wave Sequence)
Often equals the length of Wave 1, or reaches 61.8% of the total distance traveled from Wave 1 through Wave 3. 5. Quick-Reference Cheat Sheet Summary Phase Type Common Fibonacci Target Unbreakable Rules / Key Traits Wave 1 With Trend Establishes the initial trend reversal. Wave 2 Corrective Counter-Trend 50% - 61.8% of Wave 1 Must not retrace past the start of Wave 1. Wave 3 With Trend 161.8% of Wave 1 Cannot be the shortest wave; often brings high volume. Wave 4 Corrective Counter-Trend 23.6% - 38.2% of Wave 3 Must not overlap into Wave 1 price territory. Wave 5 With Trend Equals Wave 1 or 61.8% of W1-W3 Final push; often accompanied by divergence in momentum. Wave A Corrective Counter-Trend Starting point of the larger market correction. Wave B Corrective With Trend 50% - 85% of Wave A
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Enter the market at the reversal point of Wave 2. Place a tight stop-loss just below the origin of Wave 1. Set your take-profit target at the 161.8% extension level.
By treating these patterns as a strict set of rules rather than flexible suggestions, you can navigate volatile financial markets with much greater clarity and discipline.
Flats are sideways consolidations. They indicate a market where the underlying trend is incredibly strong, preventing the correction from pressing too deeply.
Use volume and momentum indicators (MACD/RSI) to check for divergence, particularly in Wave 5. 5. Conclusion Elliott grabbed his Fibonacci drawing tool
To validate a 5-wave impulse move, the emphasizes three non-negotiable rules:
: Details on the internal sub-wave counts (e.g., 5-3-5-3-5 for an impulse). Position Guidelines
Draw a trendline connecting the peaks of Wave 1 and Wave 3, then draw a parallel line starting at the bottom of Wave 2. This creates a channel that frequently projects the precise termination point for Wave 4. 4. Decoding Corrective Wave Patterns (A-B-C)
Financial markets look chaotic on the surface. Prices tick up and down driven by a relentless stream of news, corporate earnings, and geopolitical events. However, underneath this apparent randomness lies a deeply repetitive structure driven by collective human psychology. It was sitting right on the 38
It is never the shortest wave among 1, 3, and 5. Rule of Wave 4: It never moves beyond the end of Wave 1.
In a bullish impulse, the waves break down as follows:
A fake-out move that makes investors think the main trend is resuming. It often falls short of the previous Wave 5 high.
Triangles represent a balance of forces, resulting in a lateral compression of price volatility. They are always labeled and are composed of five overlapping corrective waves.
