Information for Elliott Wave Traders and Analysts

Elliott Wave - a New Perspective


What is the new (4th) rule?

Wave 5 of an impulse wave may have 3 waves instead of 5 waves.

How should the new waves be labelled?

Since the new wave consists of 3 waves, it should be labelled as an A-B-C to conform to the Elliott Wave labeling logic.

Does the 4th rule happen all the time?

No. It is one of the three possible scenarios of wave 5. In an impulse wave, wave 5 may end in one of the following ways:

All the possibilities are illustrated below:

How wave 5 in Elliott Wave may end?

Why is it a useful rule?

The new rule:

Isn't the new 3-wave structure similar to an ending diagonal?

It is similar in only one aspect: all waves of an ending diagonal are supposed to be corrective (mostly zigzags or double zigzags). However, an ending diagonal, just like an impulse wave, has 5 waves; the new structure is composed of only 3 waves.

Can the new rule be applied to all markets and time frames?

Yes. According to Elliott Wave, the market is fractal, meaning that the same patterns and wave structures constantly appear and repeat in all time frames. The new rule, just like the other rules, can be applied to all motive waves (ie. impulse waves and ending diagonals) in all markets and time frames.

Should traders be cautious when applying the 4th rule in real markets?

Yes. The main reason is that the primary wave (one of a lower degree) may become wave 1 or wave 5 of a diagonal. Subwave 5 should still be "locally ending" (ie. the next expected move is supposed to be in the opposite direction of the trend), but due to the different natures of a diagonal vs. an impulse wave, one should always be careful and be ready for different outcomes.


What is Elliott Wave?

Elliott Wave is a technical analysis tool discovered by Ralph Nelson Elliott in 1940-ties. It is based on human psychology and Fibonacci numbers.

The basic concept is that all price movements have two modes: motive and corrective. The motive mode always determines the trend and is always composed of 5 waves and a corrective mode is always composed of 3 waves. There are two types of motive waves: an impulse wave and an ending diagonal. There are four types of corrective waves: zigzags, flats, triangles, combinations.

What are the three cardinal (original) rules of Elliott Wave?

There are only three rules:

Can Elliott Wave rules be ignored?

No. Rules can never be ignored. If a single rule is broken, the whole wave pattern or structure becomes invalid and requires a recount. On the other hand, Elliott Wave guidelines may be ignored, but it is recommended to always follow them too.

Will there be more Elliott Wave rules introduced in the future?

It's unlikely that totally new rules will be adapted because that would have to change too many working parts. However, new guidelines may be discovered and some old ones may be modified or abandoned.

How many Elliott Wave guidelines are there?

Nobody really knows the exact number. Over the years, some old guidelines have depreciated, and new ones have been added. There are a dozen or so well established guidelines and possibly up to 50 that are not common knowledge.

Which Elliott Wave guideline is the most important?

"The right look" guideline is probably the most universal because it can make or break a wave structure. If a wave pattern's proportions are out of balance in price or in time, the pattern may be incomplete or be different from what was expected.

What is the best way of learning Elliott Wave?

Here is some advice to Elliott Wave students:

Can Elliott Wave help in trading?

It surely can as any other form of technical analysis. Keep in mind, though, that it may take years of active study and trading to become proficient in Elliott Wave. Memorizing the rules and guidelines is an easy part; what most technical traders struggle with is applying the wave principle to real charts. Elliott wave count software may speed up the process, but it is not recommended to use it in real trading environments.

Does Elliott Wave work today as well as years ago when it was first discovered?

It depends on how we measure the theory's performance. It is true that the more popular a trading strategy is, the less effective it may become over time. If a strategy is based on a theory that has been adapted by many traders and trading software, it may not be as effective as when it was unknown. That's why, most theories evolve and become more complex, mainly through new or modified guidelines, to remain relevant and competitive.

Is Elliott Wave different than price action trading?

When applied correctly, price action, just like the Elliott Wave theory, is fractal and works in all time frames. While price action tells what exactly is happening in the market, the wave theory also tries to forecast what may happen in the future. In most instances, the terms of "price action" and "wave theory" may be used interchangeably.

If you're looking for a price action expert who has been using the wave theories (both Elliott Wave, Harmonic Wave, NeoWave, and possibly other variations) as his dominant analysis tool, visit

Is Elliott Wave too "subjective" to work with?

There is a lot of misconception about Elliott Wave, even among trading professionals who are familiar with it.

The following are my tips and thoughts on what Elliott Wave is and what it is not:

For more information about the Elliott Wave Theory, revised Elliott Wave rules and guidelines, refer to:

... It's not how you start an Elliott Wave count that's important, but how you finish!