Rules and Guidelines Applicable to All Motive and Corrective Waves

The rules and guidelines governing specific waves are described below, and along with
the specific waves to which they apply.  You should note that rules are, in fact,
requirements. If you find a rule has been violated, even by a little, you should proceed to
an alternate wave count.  On the other hand, Guidelines don't have to be true, but they are
so frequently true (somewhere along the order of 80 to 90% of the time) that they can be
assumed to be true and relied upon. 80% reliability is a huge statistical advantage in the
stock market.  It is these guidelines that provide the real predictive power behind the
Elliott Wave theory. 
We break down the guidelines applicable to Elliott Wave Theory into two categories,
major and observational.  The observational guidelines are covered in the sections for
each of the particular waves and wave structures. 
Motive Waves -- Impulse Waves and Diagonals
Impulse Waves
RULES:
 Wave 2 may never move beyond the origin of wave 1 (retrace more than 100% of
wave 1).
 Wave 4 may never enter the price territory of wave 1.
 Wave 3 may never be the shortest wave.
 Impulse waves always subdivide into 5 waves.
 Waves 1, 3, and 5 are always 5 waves.
GUIDELINES
 Wave 3 always exceeds the pivot of wave 1
 On rare occasion, wave 5 will not move beyond the pivot of wave 3. This is known
as Truncation
 Normally, wave 3 will extend. Occasionally two waves will extend. Never will all
three extend.
 When wave 3 extends, wave 5 tends to equal wave 1 in length.
 When wave 5 extends it frequently reaches to the length of waves 1 plus 3.
 Wave 1 is the least likely to extend.
 Often the extended wave corresponds with the current parent wave. (eg. In a higher
degree wave 5, it is common for the lower degree wave 5 to extend)
 Often the extended wave will match the number of the current parent wave
 The center of Wave 3, normally has the steepest slope of the entire 5 wave
structure, except perhaps the "kickoff" of wave 1.
 Wave 2 will develop into a zigzag, flat, or combination. Wave 2 cannot be a
triangle in its entirety.
 Wave 4 will develop into a zigzag, flat, combination, or Triangle.
 Wave 5 frequently ends near channel marked by line from 2-4 pivots, extended to
wave 3 pivot.
Leading Diagonals - 5 waves (3-3-3-3-3)
RULES
  Will always subdivide into 5 waves.
 Wave 2 never goes beyond the origin of Wave 1.
 Wave 3 always goes beyond the wave 1 pivot.
 Wave 4 always enters the price territory of Wave 1 but never ends beyond the
pivot of Wave 2.
 Wave 5 will always end beyond the Wave 3 pivot - No truncation  unless a
contracting diagonal.
 Waves 2 and 4 will always be a zigzag.  Waves 1, 3. and 5 can be zigzags, but may
appear as 5 wave structures.
 A Leading Diagonal can only appear as wave 1 of an impulse or wave a of a zigzag
- the first wave of a sequence.
 Leading Diagonal - Waves 2 and 4 of a leading diagonal, always subdivide into
zigzags. Waves 1,3, and 5 may or may not.
GUIDELINES
 If Wave 1 is a leading diagonal, wave 3 is almost surely going to extend.
Ending Diagonals - 5 waves (3-3-3-3-3)
RULES:
 Will always subdivide into 5 waves.
 Wave 2 never goes beyond the origin of Wave 1.
 Wave 3 always goes beyond the wave 1 pivot.
 Wave 4 always enters the price territory of Wave 1 but never ends beyond the
pivot of Wave 2.
 Wave 5 will always end beyond the Wave 3 pivot - No truncation unless a
contracting diagonal
 Can only appear as wave 5 or wave c. - the final wave of a sequence
 All 5 waves will always subdivide into zigzags.
GUIDELINES
 If Wave 3 had not extended, Wave 5 almost surely not be an ending diagonal.
 Most diagonals converge (trend lines 1_3 and 2_4)
Corrective Waves - Zigzags, Flats, Triangles, and Combinations
Zigzags - 3 waves (A5-B3-C5)
RULES:
 A zigzag always subdivides into 3 waves
 Wave A of a zigzag is 5 waves, it is either an impulse or (rarely) a leading
diagonaal
 Wave B of a zigzag never moves beyond the origin of Wave A.
 Wave B of a zigzag always subdivides into a zigzag, flat, triangle, or combination
of the three.
 Wave C of a zigzag always subdivides into an impulse or (rarely) an ending
diagonal.
GUIDELINES
 Wave B in a zigzag will normally retrace 50 to 79 percent of wave A.
  Wave C of a zigzag almost always ends beyond the pivot of wave A, but it can
truncate.
 Wave C of a zigzag is frequently equal in price distance with wave A.
 Wave C often ends at a trend line drawn from the wave A origin to wave B and
duplicated to the wave A pivot.  As with all corrections, they are normally contained
within these channel parallel lines.
Flats - 3 waves (A3-B3-C5)
RULES:
 A flat always subdivides into 3 waves.
 Wave A of a Flat is usually a zigzag.
 Wave B of a Flat is usually a zigzag, but can be a triangle or combination.
 Wave B of a flat must retrace at least 90 percent of wave A, or it is not a flat. It
may retrace up to 105% and still be considered a flat. Thereafter, it is considered an
Explanded Flat.
GUIDELINES
 In an Expanded Flat, Wave B and normally between 105 and 138 percent of wave
A.  Beyond that, it is less likelly to be a Flat at all.
 Wave C of a Flat normally ends beyond the pivot of wave A, even in an Expanded
Flat.
 Wave C of an Explanded Flat normally ends beyond the pivot of wave A as well,
but if it fails to do so it is called a "Running Flat."
Triangles - 5 waves (A3-B3-C3-D3-E3)
RULES:
 A triangle is always subdivided into 5 waves, labeled A-E.
 At least 4 waves of a triangle are 3 wave zigzags or a zigzag combination (a double
or triple zigzag).
 Wave C of a triangle NEVER moves beyond the pivot of wave A. Wave D
NEVER moves beyond the pivot of wave B. Wave E NEVER moves beyond the
pivot of wave C.
 A triangle never has more than one complex subwave. If it does, it is always a
zigzag combination or a triangle.

GUIDELINES
 Wave B may exceed the origin of wave A, creating a "running triangle."  This
happens about 40% of the time.
 Waves B and D may at times pivot at about the same level.  When this happens if
forms a "barrier triangle."
 If a zigzag combination is going to form, it is usually it is wave C. It is longer
lasting and contains deeper percent retracements than the other waves. Wave D is the
2nd most likely.  The wave X of a zigzag combination can be a triangle as well.
 Wave C, D, or E can develop into an internal triangle.  If this happens, it almost
always is wave E.
  Most triangles are of the contracting variety, where each sucessive wave retraces
about .618 of the previous wave.
 With expanding triangles, each wave expands the previous wave by approximately
105 to 125%
Combinations
Combinations are a series of two or possible 3 corrective structures that are separated by
an X wave. When the corrective structures are all zigzags, they are known as a double
zigzag or a triple zigzag.  When they are not all zigzags, they are referred to as a double
three or a triple three and can be comprised of any corrective structures.  A zigzag and a
flat, a flat and a flat, a flat and a triangle, etc.
RULES:
 Each of the corrective structures in a combination adhere to the rules of that
structure.
GUIDELINES
 X waves most typically are 3 wave zigzags, although can at times take the shape of
a 5 wave triangle.
Count the Waves
Counting all up and down pivots you have:
 3 waves - Check for an ABC structure or a leg of a triangle or diagonal.
 5 waves - Check for an impulse structure
 7 waves - Check for a WXY structure.
 9 waves - Check for an extended impulse
 11 waves - Check for a WXYXZ structure
 13 waves - Check for a double extended impulse wave (3 1-2's)
Wave Structure
A single "Wave" is composed of an 8 wave structure, which in turn is comprised of
similar 8 wave structures. In the diagram below, note the 8 waves (1-5 and A,B.C)
marked in gray. Inside of those 8 waves are similar 8 wave structures marked
 Determine the Elliott Wave Degree
What degree you are labeling your wave structure is not terribly important unless you are
a long term forcaster, but you need to be consistent in your labelling.  if you also review
and rely on the charts of others, such as The Elliott Wave Lives On site, or Elliott Wave
international, it is very helpful to use wave degrees consistent with theirs.
We use the following method to identify degree.  If the waves you are looking at are
generally visible (you can see a few of the swings, but not identify the internal waves) on
the first time chart listed, and clearly visible (you can identify most of the internal waves)
on the second time frame, we use the following wave degree:
Generally Clearly
Visible Visible
Waves Waves Probable Wave Degrees (smallest to largest)
Weekly 2 Day Minor, Intermediate, Primary or above
2 Day 3-4 Hour Minuette, Minute, Minor, Intermediate
Daily 1 Hour Subminuette, Minute, Minor, Intermediate
1 Hour 15 Minute  Subminuette, Minute, Minor
30 Minute 10 Minute Micro, Subminuette, Minute, Minor
15 Minute 5 Minute Submicro, Micro, Subminuette, Minute
5 Minute 2 Minute Miniscule, Submicro, Micro, Subminutte
So as a general rule, we will look at a chart structure from a significant low or high on a
daily chart that encompasses all of the available data.  If you are using a monthly chart,
start labeling the waves in the Cycle degree, If a weekly chart, start with the Primary
degree, and daily as the Minor or Intermediate degree.
 Tradable Wave Degrees
All waves can be traded, especially on the impulse structure, but when you reach the
Subminuette Degree and lower the ability to profitably trade the corrective waves
becomes challenging to all but the most experienced traders. The difficulty in accurately
labeling the swing in real time coupled with the cost of commissions, the difficulty in
accurately predicting the wave terminus and the inherent potential of a wrong wave count,
make trading the smaller degrees something that should be left to the experts. If you are
interested in trading once or twice a day, you can trade the subminuette waves and ride
out the smaller waves.
 Wave 1 Characteristics
Wave 1 Structure
 Wave 1 is always a 5 wave structure.
 It almost always is composed of impulse and corrective waves with an internal
wave counts of 5-3-5-3-5.
 Very rarely will it be a leading diagonal with an internal wave structure of
3,3,3,3,3.  Even as a leading diagonal, it still has 5 internal waves, but all of the
internal waves including waves 1,3, and 5 are broken into 3 wave a,b,c structures.

 Note that in the above impulse diagram, the smaller waves break down into yet
another identical wave structure, as opposed to 3 wave structures shown for the
diagonal.  Simply put, the black waves 1 and 2 on the impulse chart will look like a
miniature version of the blue waves 1 and 2 on that chart with the same 5-3-5-3-5-a-
b-c internal structure.  As is more frequently stated, impulse waves are fractal in
nature.  If you would like to know more, take a look at the discussion of fractal
waves at StockCharts.com.  
Confirmation of Wave 1
Confirmation always requires movement beyond prior pivots.
Confirmation of Wave 1 by Failed New High/Low
At times, the expected Wave one will quickly retest the wave 5 pivot. This is generally
true on shorter term intraday charts. This retest is actually wave 2 of a smaller degree, but
can serve as initial confirmation that Wave 1 is in progress.  Using this as a basis for
trading is beneficial in three respects.  First, the wave 5 pivot where you put your stop
loss is substantially closer.  If your wave count is wrong, you can limit yourself to a much
smaller loss.  Second, if you buy after crossing the wave B pivot (our second method of
confirmation) you run the risk of a significant draw down if the wave 2 does a deep
retracement.  It is much more likely there will be angst, even if your wave count is right. 
And if it is wrong, you stand to lose a lot more money.  Finally, wave 1 may develop in
such a way that you are comfortable taking profit at the wave 1 pivot, but would not be be
in a position to do so if you had entered the trade at the wave B pivot.  That is, it is much
easier to take profit, sit out the wave 2, and reenter the trade at a much better price. 
 Confirmation of Wave 1 By Clearing Wave B of the Correction
From a strictly Elliott Wave perspective, confirmation that Wave 1 is in progress occurs
after clearing Wave B of the prior correction.  However, we like the failed new low /
failed new high approach much better.
 Until Confirmation, Alternate Counts Include:
 Wave C.5 might not be finished.  Wave 5 could be extending.
 You could be in an X Wave of a complex correction. This will first become
obvious when W1.4 overlaps W1.1 and violates the rule against a wave 4 overlap. 
When this happens, you may be tempted to declare the structure as a Leading
Diagonal. The odds are so greatly against this (except for indexes and commodities)
that you should refuse to consider it. It is far more likely to be a wave X.
 If Wave b.4 is beyond the wave 3 pivot (expanded flat), you could have a triangle
forming in wave 4, therefore use the Wave 4 pivot.
Trading Wave 1
 Cardinal rule number 1 for trading wave 1 (and any other impulse wave for that
matter) is to be certain that you have a reasonable expectation that the prior
correction has ended. Take your chart down to a lower time frame. Does the
corrective wave structure count right?  Have you taken into account any extensions
that developed in wave C?  Does the entire corrective wave adequately retrace the
previous impulse structure?  Does the correction have "the right look?"
 The common advice given for trading wave 1 is that you should treat it as if it is
still part of the prior corrective wave until such time as it rises above the prior wave
b.4 pivot.  View it as an X wave (or if you are in wave 5.1, as a part of a prior wave 4
triangle) until it clearly demonstrates to be a wave 1 (crosses the wave B pivot).  That
does NOT mean you need to wait for price to cross the Wave b.4 pivot before
entering a trade, just that you need to be mindful that the correction might still be in
progress.
 Despite the fact you are confident, identify what price action will prove you
wrong.  With wave 1, that typically means price moves beyond the wave 5 pivot.    
Entering the Trade
 The more conservative trading approach is to actually wait for price to cross the
prior wave B corrective pivot before entering a trade. 
 The more aggressive trading approach is to enter the trade after the failed new
low/high is confirmed.  For the reasons discussed above, we favor that approach.
 Stop Loss - people frequently suggest placing a stop loss one tick immediately
beyond what you think is the wave 5 pivot. While this technically is correct since you
were clearly wrong in your wave count, we have found this to be a serious mistake.
We can't tell you the number of times the market has moved beyond the pivot a few
ticks only to reverse and head in the opposite direction. The better approach is to give
the market a little leeway to create a new low. Yes, you are wrong in your wave
count, but you might still be able to salvage the trade.  Even more importantly, if you
are watching the price move against you in real time, you are better to cancel your
stop loss and watch the price action.  Market makers will frequently clear the stops
before reversing the price, but if your 5 or 10 tick stop still appears to be low hanging
fruit for them, they will go get it.  Instead wait for price to reach your exit point and
execute a market sell if price doesn't reverse pretty quickly.  With this advice, you
must still be willing to pull the trigger and close the trade if price does not
 IMMEDIATELY reverse course. Discipline is important.  Do not be temped to give
it a few more ticks to see if it changes, it won't and you'll find yourself way under
water in no time.  Finally, even if price does reverse course, put your new stop loss
right where you were going to put it to begin with, not beyond the new pivot.  All
you are really trying to accomplish is to remove the low hanging fruit, not alter your
original trade plan.
Predictions for Wave 1
 Wave 1 is difficult to predict in both price and time. As a general rule, you can
expect wave 1.1 to reach the pivot of wave 3 in the preceeding wave C. In a clean
formation, the W1 target can be estimated once W1.1 is finished. Since we know the
expected W1.2 retracement (.618), the presumed length of W1.3 (1.618), the
expected retracement of W1.4 (.382) and that W1.5 is expected to be equal to W1.1,
thee W1.1 pivot should be approximately .382 of the total length of the wave.
Therefore, an estimate can be made that the total length of W1 will be 2.618 times
the distance of W1.1.

Wave 1 Extensions
 An impulse, wave 1 is the least common extended wave EXCEPT when it is wave
1 of a larger degree wave 1.  With larger degree 1st waves (Intermediate and above),
it is common for Wave 1.1 to extend.
Using Indicators with Wave 1
Be sure to review our Introduction to using TA Indicators with Elliott Waves..
Non-extended Wave 1 Indicator Signatures
 Expect some divergence --- During wave 1, indicators will typically run from the
oversold/overbought position all the way to the reversal zone position. As shown in
the three bullish charts below, the indicators move from the oversold position up into
the overbought zone.  Note the divergence seen in the couple of the charts.  This is
the typical due to the internal wave 5 within wave 1 and can be telltale sign that wave
1 is coming to an end.  That is, indicators tend to peak at the wave 3 pivot, draw back
during wave 4 and continue to draw back (or level out) despite the price advancing in
wave 5.
 Wave 2 Characteristics
Structure
 Retracement may equal, but never pass the origin of Wave 1.
 Wave 2 is a corrective wave. It is always a 3 wave structure marked A,B,C in the
lesser degree.  Internal waves are (A5-B3-C5) or (A3-B3-C5)
 Wave 2 normally takes the form of a Zigzag. It can also develop into
a Flat or Expanded Flat. 
 
  At times, internal wave B may be a triangle.  Unlike wave 4, however, wave 2
cannot consist entirely of a triangle, a triangle in wave 2 must be restricted to an
internal wave, such as B wave, or in a complex correction X wave.  Triangles always
precede the final wave in a sequence. (4 precedes 5, B precedes C, X precedes Y)  A
triangle contained within wave 2 will always resolve in the direction of the
correction, not the trend.

 Wave 2 can become a complex correction, but does so far less frequently than
wave 4.
 Before entertaining the idea that Wave 2 has become a complex correction you
should first consider whether Wave 2 has already ended and you are instead watching
the development of a 2nd wave 1-2 structure.
Confirmations for Wave 2
Confirmation always requires movement beyond prior pivots.
Failed New High/Low Confirming Wave 2 Has Started
A failed new high or low is more frequently the action confirming that wave 2 is
working.  As shown in the diagram below, this confirmation is actually the development
of the lesser degree 1-2 waves of the a wave of the correction and is confirmed as wave 3
develops and moves past the wave 1 pivot.

The "Oh-Crap" Signal Confirming Wave 2 Has Started

 Wave 1 ends after 5 waves and is followed by a wave 2 retracement. Since wave 2
is most commonly a zigzag, and one of the common traits of a zigzag is a steep and
fast A wave, your first signal that wave 2 has started is often the "oh, crap signal,"
when the price reverses hard in a matter of a few bars or opens down significantly.  
Trading Wave 2
Trading Wave 2 typically takes one of two forms.  Either you are using confirmation of
wave 2 to exit a trade you were in during wave 1, or your prediction of the depth of
correction will be sufficiently profitable to make a trade. 
Depth of retracement is generally unpredictable other than to follow the general statistics. 
NORMALLY, you can expect the wave 2 range to be the prior wave 4 low (wave 1.4)
and the .618 level.
Using Wave 2 Confirmation to Exit a Trade
Using Wave 2 confirmation as an exit for a trade is common practice and can be part of a
sound trading strategy.
Using Wave 2 confirmation to enter a trade
Entering a trade for wave 2 is risky business for a number of reasons.
 You might have missed an extension in Wave 1 and it isn't really finished.
 You are trading against the trend, which in itself is ill-advised.
 There is no reliable means to predict how deep the wave 2 retracement will move.
Sure, it could be .618 of wave 1, but it could also be .382.
  When wave 2 is finished, Wave 3 can at time start off like gangbusters. You may
not have sufficient time to exit and maintain any profit, or worse, your profit is
quickly turned into a loss on a reversal gap the next day.
 There are a number of complexities that can form (like expanded flats, X waves,
and triangles in the B wave) that will make you miserable watching the wave develop
All of this having been said, you can certainly increase your odds of success by trading
larger degree waves that are expected to be deep and take several hours or days to
complete, but even that is no guarantee.  So, a word to the wise: If you don't clearly
understand the risk, don't try to trade in wave 2.
Predictions / Retracement for Wave 2
 As a Zigzag (A5-B3-A5) -  .5 to .618 of Wave 1 - Generally around W1.1
 As a Flat (A3-B3-C5)- .382 of Wave 1 - Generally around W1.4
 As an Expanded Flat (A3-B3-C5)- .236 of Wave 1. 
 Statistically, 73% of Wave 2's will retrace to at least .5 to .618 and 15% as far as
100% of W1.  I'm not sure where these statistics came from, but they seem
appropriate in our experience as far as larger degree waves are concerned. With
respect to smaller internal waves, especially in parent waves 3 and 5, it is far more
common to see a .382 to .50 retracement.
 It is very important to note that the depth of wave 2 is a preview of the buying or
selling pressure of the market.  A shallow Wave 2 retracement predicts stronger wave
3s.  When Wave 2 is an expanded flat, you can pretty well count on W3 to achieve a
2.618 multiple of W1.  Expect big moves after flats.
Using Indicators with Wave 2
 As we mentioned with the end of wave 1, indicators will typically be showing a
divergence beginning at wave 4.  Wave 5 moves on but the divergence continues in
wave 5.  This explanation applies to wave 2 and all other waves as well.  The wave 5
of C wave in a wave 2 correction frequently shows divergence.
 Wave 3 Characteristics
Structure
 Is an impulse wave with a 5 wave (5-3-5-3-5) structure
 Can never be the shortest wave
 If W3 is shorter than W1, expect W5 to be shorter than W3.
 Until it reaches 1.618 of W1, consider it to be a Wave C instead.
 Frequently extends into a 9 wave structure, with another impulse wave contained
within it.
Retracment
Trading
 Do not get suckered. W2 must be a 3 wave structure, so don't prematurely start the
Wave 3 count.
 Best conservative approach is to wait for W3.3 to clear W3.1, then enter.
 Aggressive approach is to enter when W3.2 pivot is marked.
 Once you are in a wave 3, do not attempt to trade it.  Corrections are frequently
shallow and mal-formed.  They can look like a single corrective wave.  Time wise
they seem to be about right, Just hang on and ride them out unless you are on a
higher degree and can improve your position without much risk of being left behind.
Prediction
 When extended, can reach 200, 261.8, or 4.25 of W1.
Notes
 Wave 4 interpretation
Wave 4 must not enter the price territory of wave 1 (except in a diagonal)
 Can you have a very slight overlap without violating the rule?  Yes. This is not
really an exception to the rule, but rather the manner in which the rule is defined. 
Elliott developed the wave theory using a close only price chart, not HLC or
candlestick charts. Wicks did not come into consideration.  Therefore, unless the
price of wave 4 enters the body of the Wave 1 pivot, there has been no violation of
the rule.  This mode of interpretation may further be warranted given that trading is
highly computerized these days and the enemy computers will clearly "gun" for the
stops people place immediately inside of the wave 1 because of this rule.
Overlap Alternatives
 If W4 violates the rule that it can never overlap with W1, you must now re-label
the waves so as to adhere to the rules and guidelines.  Most importantly, you must do
so in a manner that does not reflect any bias as to the direction you would prefer. 
What is the next most probable formation.  Generally, this translates into what is the
simplest formation.
 As with all wave counts, when selecting your alternative count, avoid grasping at
the rare formations to form an answer. Yes, ending diagonals and triple Zigzags do
occur, but you shouldn't immediately jump to the conclusion that it must be a
complex or rare formations as your answer.  You should always be forced into
selecting one of the rare formations because nothing simple works.
 Alternative counts include:
 A 1-2 / 1-2 formed and you are in the second W2 rather than a Wave 4.
 It is an expanding ending diagonal in W5 - (W4 already terminated and you
are in W5.) These are pretty rare, so not likely the probable answer.
 W4 is breaking into a double (W-X-Y) or Triple (W-X-Y-X-Z) Zigzag. A
double and triple are pretty rare, therefore not the most probable explanation.
 It's not an impulse wave to begin with, but an A,B,C correction, and you are
in WB retracement.
Retracment
 Standard Stochastics (14) will tend to pull down to the Bullish reversal level,
between 40 and 50.
 MACD will tend to pull down to do a ZLR (Zero Line Reversal), although that is
much more common with Wave 4.
Trading
 Can you trade Wave 4?  Sure, but there are a lot of good reasons not to.  Complex
corrections and triangles thrive in W4, so if you want to trade it you need to learn to
ignore your indicators and be on your toes and prepared to hold on for the ride.
 Prediction
Notes
 When W4 violates the overlap rule with W1, you must reject the current count.
You have 3 alternatives:
 1.  It is an Ending Diagonal, not an impulse wave. -  If your wave 1,2,3 structure is
not comprised of 3 waves each, reject this.
 2.  What you thought was waves 1-3 is actually an X wave. You are not in a
motive wave at all but rather a complex correction.  Your expected wave 4 is actually
wave A of the Y leg of the correction.
 3.  Instead of being 1,2,3,4 you are really in a 1-2/1-2 setup for a strong move. 
Does the setup appear to be a 1-2/1-2? Check here.12_12_elliott_waves.html
 , you should immediately consider Waves 1-3 to actually be Wave X in a complex
correction.  The expected W4 is actually Wave A in the next corrective sequence and
there is more counter-trend correction to follow.
 When W4 takes greater than 4x the time traveled in W2, it is far more likely that
what you are labeling as W4 is actually W2 of a larger structure.  Don't blindly
accept a huge W4 when compared to a small W2.
 Wave 5 Characteristics
Structure
 W5 will always have 5 sub-waves
 W5 is prone to truncation.  
 When truncated, W5 fails to push beyond the pivot of Wave 3.  This
happens more frequently when W3 was particularly strong.
 Truncated W5 are actually pretty rare.  It is far more likely that you either
have mislabeled wave 3 (it is actually wave 5 and you are currently in wave B of
the correction) or that you have a complex W4 ongoing and you are in Wave X
and have not yet reached W5. 
 Truncation typically appears as 3 waves then a sideways movement, which
can help differentiate if from a complex correction. 
 When wave 5 is extended, expect a double retracement.  First is over the extended
portion, down to around W4 of the extended wave then the second retracement over
the rest of the previous wave, down to the primary W4.
 Indicator Divergence -- Wave 5 almost always presents with indicator divergence.
One costly error is to close a trade because of indicator divergence when it is not
confirmed by price. You must let price, and perhaps an MA cross over signify when
the move is done.
Prediction
 There are numerous methods to project the length of the 5th wave. Using
clustering of them all provides some much needed insight into the probabilities:
 Wave 5 = Wave 1
 Wave 5 = .618 or 1.618 of Wave 1 + Wave 3
 Wave 5 = Wave 1 (100%)
 Wave 5 = 1.382 or 2.00 of the Wave 4 move
 Wave 5 = 1.382 or 1.618 of the swing prior to W1.
 When truncation occurs it signifies that the market is ready to move in the opposite
direction, and early.  There is a sharp, swift, move in the opposite direction.  Almost
a straight line.   As one might expected, truncation usually predicts a much longer
Wave A in the correction.
 When wave 5 is extended, the most common multiple for its length is 1.618 times
the length of wave 1 through wave 3.
Notes
 Wave A Characteristics
Structure
 Wave A is either a 3 wave structure or a 5 wave structure.  Whichever it turns out
to be will determine the course of the remainder of the corrective waves B and C.
 A 3 wave structure denotes the correction will be a Flat or Expanded Flat.  It could
also be wwave A of a triangle, but that is only applicable to wave 4 corrections.
   A 5 wave structure denotes a Zigzag correction or something more complex.
 Remember the principle of Alternation. If you are in a wave 4 correction, look to
the alternate of the correction type in wave 2. (wave 4 typically a flat if wave 2 was a
zigzag.)
 A sharp wave A is typically associated with a zigzag.  A shallow sloped WA, a
Flat.
 Pay attention the the previous impulse waves.  If the W5 was well extended, then
there is a probability that the ABC correction in its entirety is going to be deeper than
expected, or a double correction is expected.
 Wave A may be a leading diagonal, so 3 wave internals and wave overlap can
occur.
 

 
Trading
 Trading Wave A can be challenging because you aren't ever quite sure when it has
started and when it has ended.  At the beginning of WA, you are normally still open
to the possibility that the prior W5 impulse will push to a new extreme in an extended
W5.  At the end of three waves in WA you may be expecting 2 more waves, but the
 wave ends in 3 and reverses to create a flat.  That all having been mentioned, if you
are trading the total correction you can certainly get it on at the failed new extereme
of WA.(2 or B) and ride it out. 
 IF the 3rd wave of A ends in the .382 retracement of wave 5, there is a good
chance that you are dealing with a Flat correction. Similarly, if Wave AC is
extended, it is far more likely to be a zigzag forming.
Prediction
Notes
 Wave B Characteristics
Structure
 Wave B is always a 3 wave structure. 


Retracment
 In order, the most common retracements are:
 .382 of WA
 .618 of WA
 .50 of WA
 in a Zigzag, If Wave B reaches beyond .768, you have likely already finished the
ABC correction and are now in your next impulse wave. 
Trading
Prediction
Notes
 Wave C Characteristics
Structure
 As a general rule, in Zigzags Wave C will be shallow and Wave A will be sharp. 
In flats, WA will be shallow and WC will be sharp. 
 The distance WC travels means something. The shorter it is the greater the
likelihood the reversal will be sharp and significant. The longer it is, the more likely
the reversal will be slower.

Retracement
 The most common retracements, in order are
 100% of WA (EQUALITY)
 1.618 of WA
 .618 of WA
Prediction
 When Wave C fails to reach equality with WA, such as with only a .618
retracement, you can generally interpret that as being contrary pressure in the market
and expect a strong move in the other direction in the not too distant future. The
converse is NOT true, if extended beyond 100%, there it can be interpreted as being a
more volatile market. It too results in a strong move in the opposite direction.
 The short (.618) retracement is more reliable for a strong counter-move for the
next 1-2
Notes
 If WC >162% of WA, then likely the wave count is wrong. More likely an
impulsive W3. Check WA structure for 5 waves.
 Elliott Wave Extensions (in general)
 The simplest definition of an extended wave is an impulse wave where the smaller
degree internal waves demonstrates obviously visible wave amplitudes along with the
wave degree in observation. In so doing, that internal wave structure dramatically
extends the higher degree wave beyond what would be its normal expected length.
They are elongated, sometimes dramatically, by the extension of the internal waves. 
Extended waves may also extend. See wave 1-2/1-2 structures for more information.
 Extension occur in impulse waves only. Therefore, corrective waves A and C may
extend. 
 Almost all impulse waves have one extended internal wave (1, 3, or 5).  Rarely two
waves (3 and 5) will extend. Never will all three waves extend.
 80% of the time, it is wave 3 that will extend. Wave 5 is the next most frequent,
then wave 1.
  Wave 1, having no predicted length, requires you analyze the internal structure
before declaring it to be extended.  If internal wave 1.3 is greater than 1.618 times
wave 1.1, it is technically extended.
 It is typical for waves 3 and 5 both to extend when they are of Cycle or Supercycle
degree.
 Often the extended wave is the same wave as its parent wave.  In a larger degree
wave 5, for example, it is more common that sub-wave 5 extend.
Structure of Extensions
 With extensions, the number of sub waves for the entire impulsive wave can
resolve to 9 or 13 (double extension) most normally.
 Extensions may occur within extensions (Double Extension).  
 Acceleration gaps frequently occur in a Wave 3 extension and a second gap.  At
times, an exhaustion gap offers some prediction you are nearing the end of a wave. 
Knowing this, scanning for gaps can help you hone in on stocks that are in the middle
of an extension.
 Because the extension of a wave typically represents exuberance in the market,
they tend to create a very steep price run. And frequently exhibit a series of "humps"
on the chart for the multiple 1-2's and 3-4's that occur in the internal structure.
 Trading
 Once you have determined that an extension is occurring, there is only one way to
trade it, which is the direction of the wave. Enter the trade and ride it out. You won't
be sorry.  The following applies to all extensions, but is based on observations of a
third wave of a third wave.  It is practically impossible to trade the corrections of an
extension. They don't last long, they frquently don't retrace near what you are
expecting (it is very hard to identify the wave degree in the extensions) and, at times,
the seem to be shortened versions of the typical A, B, C waves.  What you think is
wave A is often times the entire retracement, leaving you looking like an idiot when
the trend resumes and you are still waiting for another swing.  When the extended
wave is over, you will know it and will still show more profit than if you  tried to
trade the corrections.  Just don't do it! 
 Perhaps it is not apparent, but there are a couple of key areas where you should pay
attention to the wave structure.  When a short correction after 5 takes back off and
clears the wave 5 you know the wave count will now go to 9.  You can stay in the
trade until then.  By the same analysis, when a short correction after 9 takes back off
and clears the wave 9 pivot you now know you are going to 13.  If you have been
able to mark the 1-2,1-2 sequence(s) at the beginning of the chart, this gives
confirmation to that labeling.


 Additionally if you happen to note an acceleration gap, use the measuring gap rules
to at least approximate the end of the wave.


 Fibonacci Price Targets for Retracement and Extension
It takes very little time or experience in studying the Elliott Wave Theory in order to
recognize that Fibonacci ratios are clearly relevant in predicting locations where prices
can be expected to pivot, and in quickly confirming that a pivot is a genuine turning point
as opposed to a simple "headfake" by the market. In the sections below we will identify
the expected Fibonacci levels where the various waves are more likely to pivot.
We've grouped all of the Fibonacci targets from the various specific web pages for ease of
use.
Motive Waves. 
Motive Wave extensions refer to waves that are moving in the same direction (normally
with the trend).
Wave 1
 In an impulse wave 1 is difficult to predict.  As a general rule, it is expected to
reach at least 2.618 of wave 1.1
 Wave 1 can extend, in which case you should know that it is doing so when wave
1.3 subdivides.
Wave 3
 Wave 3 is likely to extend, especially if wave 1 does not.
 A normal wave 3 should reach at least 1.618 of wave 1 at a minimum.  If it does
not do so, it may be putting in a 2nd 1-2 wave indicating that it is going to extend.
 An extended wave 3 can reach 2.618 even 4.618 of wave 1
Wave 5
 If wave 1 and wave 3 are not extended (wave 3 not > 1.618 of wave 1), look for
wave 5 to extend.
 If wave 5 is expected to extend, you can expect wave 5 to reach 1.618 of wave 1 +
wave 3.
 If wave 3 is extended, you can expect wave 5 = wave 1.
Corrective Wave Structures
Retracements deal with movements that are in a counter-direction, or opposite of the
wave being compared.
Zigzags
 Wave A of a zigzag will frequently drop .38 to .50 of the preceding wave. 
 Wave B    1st) .382 of WA    2nd) .618 of WA   
 Wave C    1.00 of WA (equality) 
 Using the principle of equality, when wave B has pivoted, you can easily plot wave
C's expected pivot.
Flats
 Wave A will drop .23 to .50 of the preceding wave.  .382 is common.
  Wave B must retrace at least 90 to 105% of wave A (beyond that is an expanded
flat).  Less than 90%, declare wave A to be a W and wave B to be a wave X until
proven wrong.
 Wave C will normally be equal to A, but can be up to 1.618 of wave A.
Expanded Flats
 Wave A will drop .10 to .23 of the preceding wave.
 Wave B will retrace over 105 to 1.318 of wave A. Beyond that, your count is likely
wrong.
 Wave C should end BEFORE the pivot of wave A.  Wave C is not expected to = A
Triangles - Contracting
Triangle - Barrier
Triangle - Running
Triangle - Expanding
Also known as an expanding wedge
 Wave A is not capable of prediction.
 Wave B, C, and D are >= the previous wave in the triangle, normally 105 to 125%
of the previous wave.
Complex Corrections
Correcting Extended 5th Waves
 Expect 2 corrective wave structures, the first correcting the extension, the second
correcting the entire 5th wave, down to the prior wave 4.
 Wave 1-2 /1-2 Wave Characteristics
A 1-2/1-2 structure is an indication that the larger degree impulse wave in development is
extending. All extended waves are going to have a 1-2/1-2 structure. Typically, you will
find them in wave 3's, but they certainly can develop in waves 1 and 5.
The 2nd Wave 1 almost always exceeds the first wave 1.
The 2nd Wave 2 almost never moves beyond the first wave 2 pivot. 
The 2nd Wave 1-2 structure most often does not exhibit alternation.  You might end up
with two wave 2 zigzags, or 2 flats.  This can be a tip-off that you are not looking at wave
4, but rather a second 2nd wave.
The second 2nd wave is typically not as steep as the first 2nd wave.
 Structure
The 1-2/1-2 structure is not difficult to identify, even in real time.  A typical impulse
wave normally forms with a wave 1 of some indeterminate distance, and a wave 2
retracement typically of 50% to 61.8% of the wave 1 movement. Then, wave 3 will take
off in a very impulsive manner, creating quite a distance between the wave 1 pivot and
where the wave 3 pivots.  With a 1-2/1-2 structure, price most often moves back into the
territory of the previous wave 1-2 range.   Doesn't have to, but it does need to be close.
The 2nd wave 1-2 structure needs to be similar in proportions to that of the first 1-2
structure, not taking much more, if any more, time than the first.  Remember, you are
actually
seeing the development of a smaller degree impulse wave, so expect it to be a bit smaller
than the larger degree structure.
There are two types of 1-2/1-2 combinations.

The short advance 1-2/1-2:

The short advance 1-2/1-2 occurs when the wave 1 pivot is overcome in what you think is
to be wave 3, but price stops shortly after surpassing the wave 1 pivot and returns back
into the range of waves 1-2.    Wave 3 is supposed to fly.  When you find yourself
frustrated because the price isn't moving as expected, that is the point you should suspect
another 1-2 is in the works.
 
The deep retracement 1-2/1-2
There are times when wave 3 develops normally and you have at least a 1.618 extension
beyond wave 1.  Wave 3 looks good, but price then proceeds to pull back into the range of
waves 1-2. You might be tempted to call the structure wave 4 and label the wave as
diagonal, but if you can clearly identify 5 waves, rather than 3, in wave 1 you are more
likely looking at a 1-2/1-2.
 
Guidelines to exclude a 1-2 1-2 count
The second Wave 1 MUST have overlapped the first Wave 1 or it should be
treated as a B wave in an ongoing wave 2 correction. Potentially it is an internal
wave 1-2, but not the start of an extension. - To clarify, an extension suggests a
massive elongation of the impulse pattern.  All impulse waves 1, 3 and 5 have
internal 5 wave structures as well.  The fact that you can see the internal 1-2 at
times does not mean the larger wave will extend.  When the second wave 1 does
not exceed the first, the probabilities are that the wave is not going to extend. 
Not every double pair of pivots is a 1-2/1-2, however. Here are some important
considerations to keep you on track. The 2nd wave 1 must advance beyond the pivot of
the previous wave 1.
The Second Wave 2 should not overlap the trend line from the first wave 2
The 2nd wave 2 pivot must not move beyond the previous wave 2 pivot. It either of these
is not true, then you are likely still seeing the first wave 2 developing or a B wave triangle
working in the 1st Wave 2.
 Prediction
 The fact that wave 3 most normally extends, and in order to have that extension
you must have a second 1-2 structure (not necessarily visible on the same time
frame), it gives you an opportunity to enter the trade at the 2nd 1-2. That is, once the
price has passed the first wave 1 pivot you can look to enter the trade at the 2nd wave
2 pivot.
 The more 1-2/1-2 waves you have the more choppy "unwinding" will need to be
done in the form of multiple wave 4s and 5s as final waves to close up the 1-2/1-2
structures.  
As the chart below shows, beginning in February of 2016, the DJI Index began a
strong impulse wave higher.  We noted 3 sets of concurrent 1-2 waves leading into
the circle IV correction (bright green), with a great deal of complexity still to come in
the remaining waves.
 
 Zigzag
Structure and characteristics
 5-3-5 structure
 Common alternation with Zigzags. 
 Wave A is most commonly steeper than Wave C in a Zigzag.  If you see a steep
start to Wave A, think Zigzag.
  Wave A and C will alternate between being sudden and sharp, without defining
waves, and well defined. If wave A is a "screamer" you can expect wave C to be well
defined and shallow, and visa versa.

 Because of the 5-3-5 wave structure of a Zigzag you will often be placed in a
situation of having to differentiate a Zigzag from a 1,2,3 wave count.  Getting it
wrong has some serious repercussions. 
 The chart below raises the question of whether an impulse wave or a corrective
wave is developing.
While no single guideline you can apply will predict the answer, when using multiple
guidelines it is possible to determine which is more probable.  

 Corrective action is typically contained within parallel lines. This is not.

 Wave A and Wave C tend toward equality. They are significantly different here.
 Wave C is typically more shallow in slope than wave A. It is steeper here.
Again, while no single one of the above guidelines is determinative, and all three could be
wrong, the fact that this chart violates each of the guidelines for a corrective wave, makes
it more probable that we have a 1,2,3 structure in the chart.
Retracement
 The most common retracements of a Zigzag are (in order):
 Wave B    1) .382 of WA    2) .618 of WA    3) .50 of WA
 Wave C    1) 1.00 of WA (equality)    2) 1.618    3) .618
 in a Zigzag, If Wave B reaches beyond .768, you have likely already finished the
ABC correction and are now in your next impulse wave. 
Since we anticipate that WA = WC, once Wave 2.A is in, the Wave 2.B pivot can be
estimated by transferring the distance of Wave 2.A to the .618 total expected retracement. 
Draw a trend line from OA to A, transfer it so that the end is at the .618 retracement.   The
other end approximates where Wave 2.B can be expected to pivot.
 Flats
Structure
 3-3-5 internal structure
 Alternation also is common in the 3 waves of Waves A and B in the flat. WA and
WB alternate between a Zigzag and Flat.
 The most common structure is that WA and WC demonstrate equality.
 Regular Flats -- The typical structure of a regular flat is that Waves A, B, and C are
close to equal lengths. Wave C is 5 waves and normally will be steeper than wave A.
 Expanded Flats -- Wave B will result in a new price extreme beyond the origin of
WA.  However, just because the structure is tight with previous W5 high do assume
that the following W5 will be shallow.
 Running Flats -- Wave C does not travel the full expected extent, but stops short
and reverses strongly.
 In a Flat, WA is expected to be steeper than WC.

Retracement
 Regular Flat - Wave B will retrace 90% to 105% of WA. If greater than 100, it is
an Expanded Flat. Wave C will travel about the same distance as WA. If you see 5
waves and a reversal before 90% don't try to force the Flat interpretation, it is likely
wrong. Wave C can be an Ending Diagonal.
 Expanded Flat - Wave B will retrace up to 1.382 of WA. It can be shorter or
longer, but beyond 1.5 favors a different wave interpretation.  Wave C of an
explanded flat typically extends to 1.382 of WA.
 Running Flat - Wave C, while still consisting of 5 waves is cut short (think
truncation) and reverses direction causing a very strong move in the opposite
direction.
Prediction
 Flats generally show that the market continues to maintain a bullish or bearish
attitude to the point that they are not interested in strongly correcting the trend.  After
the correction you can expect a decent move.
  Note that when W2 is an expanded flat, you can pretty well count on W3 to
achieve a 2.618 multiple of W1.  Expect bigger moves after flats.
 Triangles (3-3-3-3-3)
Structure
 Triangles only form in Waves 4, B, and X, the waves prior to the terminating wave
of the structure.
 There are five Waves (A-E) and each wave will normally subdivide into a 3 wave
structure such as a Zagzag.
 A running triangle is said to have formed when the B wave exceeds the origin of
WA.  (think expanded flat.)
 There are three types of triangles. The most common are the contracting,
symmetrical kind. Barrier triangles form where one side resembles a horizontal line,
and expanding triangles, which are very rare.
 Wave C, or occasionally wave D, will normally become complex and form a
double (WXY) or triple Zigzag (WXYXZ) formation.  X can be a triangle itself.
 Infrequently, Wave E can develop into a smaller triangle, making a total wave
count of 9 waves, labeled A-E, with the interior triangle labeled a-e of the next lesser
degree. The ending pivot is E e.

Specifics
In a wave 2, a triangle may only form in wave B of the retracement. It can not comprise
the entire wave 2. However, in wave 4, a triangle may form as the entire wave 4 structure
or as wave B in the wave structure. These will resolve in opposite directions, so you need
to be right on where the triangle is located.
 
 Retracement
Triangles rarely follow retracement rules, but these are the stated retracements
Contracting and Symmetrical Triangles
 In a triangle, at least two waves frequently have a .618 relationship with their prior
wave.
 With a running triangle you can expect Wave B to reach 1.382 of Wave A, before
the remainder of the triangle falls into suit with .786 retracements. The relationships
are somewhat more expanded than regular triangle relationships.
Expanding Triangles
 As a general rules, these triangles conform to 1.618 relationships between the
waves.
 Characteristics of Complex Corrections (Combinations)
Structure
 Complex corrections are multiple ABC corrections which are joined by a three-
wave price move identified as wave X. See When to declare an X wave.l
 Each of the waves in a complex correction adhere to the basic Elliott structures
identified for corrections. That is, Zigzags, Flats, or Triangles.
 They can occur as the entire correction, being the major ABC waves and done, but
they can also occur as a single wave B in the ABC correction.  This means you could
have a normal A, a double or triple as a wave B, and a normal C wave.
 A "Double" consists of two ABC corrections joined by the X-wave.  These are
denoted as A–B–C–X–A–B–C or abbreviated as simply W–X–Y.  A double presents
itself as a 7 wave corrective structure.
   A "Triple" is three ABC corrections joined by an X wave between the
corrections.  These are denoted as A–B–C–X–A–B–C-X-A-B-C or abbreviated as
W–X–Y-X-Z.  A triple presents itself as a 11 wave corrective structure.
 Complex corrections are still a part of a larger corrective wave structure and that
structure still must adhere to the Wave Rules.  As a W4, the complex correction must
still not overlap W1.  However, this does not mean the expected retracement will be
the same as a common W4 pattern, like a Zigzag or Flat.
 As a general rule, when you see a 3 wave WA, but Wave B does not retrace to near
the origin of wave A, you can't call it a flat.  But with only 3 waves in A, you can't
call it a zigzag either.  Therefore, the appropriate label is a WXY.
 A triangle may still form as WB in one or more of the legs of a complex
correction. 
 Predicting Complex Corrections
As shown in the graphic below, when the A wave of a correction fails to breach the wave
2 -4 trend line (even if the entire 3 wave structure adequately retraces the wave or even
excessively corrects it) you should expect a complex correction.  Note that this chart
could represent wave 1 or 3 or 5 of the higher degree, meaning the 2-4 trend line is in the
smaller degree wave or those impulse waves.
If the A Wave is 3 waves, and the B wave does not come within 90% retracement to the
impulse pivot, you can't label it as a zigzag and you can't label it as a flat. It is an ongoing
complex correction.

Retracement
 Even though the entire wave of a complex correction (eg. Wave 4) must adhere to
basic Elliott rules, there is no predictable retracement. You must simply wait for the
wave to complete to signify the end of the correction.

Trading
 Don't trade them on purpose.  If you find yourself in one, find an appropriate exit
point or be prepared to wait out the correction and return to the trend.
Prediction
 They provide no known predictive value, although we can predict you will be
miserable if you are holding through one of them.
Notes
 A complex correction will first become obvious when your expected movement
into the next wave of a correction fails to breakout and instead pivots and reverses. 
You can then mark the 3 wave structure as Wave X and expect another one or two
A,B,C corrections to follow.
 X Waves
One of the more difficult and certainly confusing aspects of the Elliott Wave Theory
involves the nebulous complex corrections and X Waves. A beginner with the wave
theory will certainly spend a lot of time trying to understand X waves. To add to the
complication they will undoubtedly follow other Elliotticians and not understand why
what appeared to be a normal correction was labeled as a WXY or WXYXZ. We are
going to try to take the mystery out of this issue for you.
When to declare an X wave and a complex correction
An A,B,C correction, whether a flat, zigzag, or triangle, needs to follow some proper
guidelines. Those are expressed in the webpages on the specific corrections. When they
don't follow the guidelines they are not properly labeled as a zigzag, flat, or triangle. They
have become complex and must instead be labeled as such.  Here is an ongoing list of
when you should declare an X wave, and thus a complex correction:
 When wave A consists of 3 waves, but wave B does not reach a 90% retracement
of A.  You can not properly identify the structure as a flat or a zigzag.  Potentially it
could work as a triangle, but without a really complex C wave or a D wave you can't
really label it as a triangle either.  It should tentatively be labeled as an X wave.
 Following an A,B,C retracement, the price starts what is expected to be wave 3 (or
wave 5), but pivots and reverses before reaching the pivot of wave 1 (or 3).  Label it
as an X wave.  (Note it can't be an extension forming (another 1-2), as that would
penetrate the pivot before reversing.
Signs that a complex correction may be underway
There are some trip-offs that complex correction may be occurring.
 When wave A fails to penetrate a trend line drawn between wave 2 and 4 of the
previous impulse wave, there is a better than average chance you will have a complex
correction form, no matter whether wave c drops to a normal level thereafter.
 When the A,B,C retracement looks complete, but has not achieved a minimal
Fibonacci retracement level.
 Ending Diagonals
Structure (3-3-3-3-3)
 A terminating wave pattern. May only form as Wave 5 or as Wave C in a Flat or
Zigzag (nothing else).
 It is a Motive Wave, therefore shares the same general characteristics as an
impulse wave, EXCEPT that W4 will always cross into the W1 territory and that all 5
waves of the ending diagonal will divide into 3 wave substructures (3-3-3-3-3)
 95% of the time they are the contracting variety and demonstrate zigzags, or
double or triple zigzags, but they are always comprised of the 3 wave structure.
 An ending diagonal appears at the termination point of larger movements, most
often as wave 5. Rarely as wave C.
 Frequently you will see a through-over the trend line in wave 5.   You can almost
expect to see it.  Very normal attempt to shake out weak hands before moving in the
opposite direction. 
 The retracements always start with a swift drop, commonly down to the wave 2
low of the diagonal, and ultimately ending about even with the origin of the pattern.
 Are generally thought to occur when the preceding waves have gone "too far, too
fast."
 Retracement within the diagonal
 W2 retraces to the range- .618 to .812 of W1
 W4 retraces to the range .382 to .5 of W3
 W5 frequently .618 of W3
Trading
In the diagram below, you will see three possible entry points (A-C) where the pattern has
been confirmed and which can be used as the location for a trade. The placement of the
stop loss reflects the Elliott Wave rule that wave 2 can never retace more than the origin
of wave 1, so if the labeling is correct and W5 is in fact finished, the trade will be
profitable. Each entry point, point has it benefits and drawbacks. is
 Using point A, the break of the trend line has the potential of yielding greater
ultimate profit. It also has a better chance of never resulting in a drawdown during
the corrective wave 2 that is to follow. The risk to using point A is that Wave 5 may
not be finished. It may cross the trend line only to pull back through it to a new high.
 Using point B is more conservative. Once the wave 4 pivot is passed, Wave 5 is
clearly finished, but by waiting until then you have reduced the ultimate profit on the
 trade and run the risk of a bigger drawdown, especially if W2 retraces up to near the
origin of Wave 1, near the stop loss line. Using point C is even more conservative
and has an even bigger reduction in profits and possible drawdown.
 From the author's perspective, you may be better off taking the unconfirmed trade
right after the wave 5 pivot. While wave 5 may not yet be done, your potential loss is
very limited because you have a tight stop loss. Other considerations would be to
raise your stop loss up to the point where, should wave 5 reach it, wave 3 would be
the shortest wave. Contracting diagonals provide the unique opportunity to use this
technique.
 Leading Diagonals
Structure (3-3-3-3-3) OR (5-3-5-3-5)
In real-time charting, you should NEVER label a developing wave as a leading diagonal.
These are so rare you should not even consider them as an option. You should label
leading diagonals as such only on past charts when there is no other wave count that fits.
 A beginning wave pattern. May only form as Wave 1 or as Wave A of a Zigzag. .
 Elliott Wave International notes that the vast majority of leading diagonals divide
into 3 wave substructures (3-3-3-3-3), but also note that a few have been found with
5-3-5-3-5 structure, yet Wave 4 will still enter the price territory of Wave 1 - which is
what makes it a diagonal.
 It would also be safe to say that, since W4 can overlap W1 in a leading diagonal,
there may be situations where a 1-2 1-2 count isn't working out because it was a
mislabeled leading diagonal rather than a 1-2 1-2.  Best to keep this in mind in when
exploring alternate wave counts when a 1-2, 1-2 count isn't working out. 
 As with ending diagonals, this wave develops more as a diagonal wave than a
typical fast moving impulse wave.
 It is a Motive Wave, therefore shares some of the same characteristics as an
impulse wave. W2 may never cross the origin of W1 and W3 may never be the
shortest wave.  However, unlike impulse waves, W4 will (almost) always cross into
the W1 territory. This "almost" leaves open the possibility that Wave 1 could be a 3-
3-3-3-3 structure without wave 4 overlapping wave one.  Curious indeed.
 Frequently you will see a throw-over the trend line in wave 5.   You can almost
expect to see it.  Very normal attempt to shake out weak hands before moving in the
opposite direction.

Notes:
 Diagonals are usually followed by a quick thrust in the direction of the next wave
that completely eclipses the diagonal wave.  That normally completes takes only 1/2
to 1/3 of the time it took for the pattern to form.
 Wave Identification
Multiple Wave Structures
 3 Waves -  Correction
 5 Waves - Impulse, Diagonal or, if lateral orientation, wave 4 corrective Triangle
 7 Waves - Double Correction
 9 Waves - Single Extended Impulse, or if lateral orientation, a double triangle.
 11 Waves - Triple Correction
 13 Waves - Double Extended Impulse
Multiple Wave Structures
  5 then 3 ImCorrection
 Determining Wave Degree
Reviewing numerous sources on the internet it is obvious that the labelling degrees is not
an exact process.  One person's Intermediate degree can be another person's Minor degree
and another's Primary degree.  It really is of little consequence, however. Wave theory
depends on scale and fibbonaci percentages, both of which will be the same regardless of
what degree you are labeling.
Regardless of which degree you start the labeling process with, it is very important that
you label comparative moves as the same degree.  Waves are supposed to have the "right
look"  in both price movement and, much more loosely, time to completion.  It is not
realistic for a wave 4 which maps out 122 bars to completion to be the same degree as a
wave 2 that finished in 4 bars.
We found this handy chart which explains how these folks determine degree which may
be helpful.  
 

In our practice, when we look at a daily chart and see the smallest impulsive waves in
which the swings (you can count waves 1,2,3,4,and 5 but not necessarily the internal
structure of those waves) can be recognized, we start with a Minutte (Pink, Parenthesis,
italic) degree label. So, the smallest clearly identifiable swings (but not necessarily the
internal structure) are Minutte degree and graduate up and down from there with the time
frame being viewed.  
Correction Times
Use the appropriate time frame to analyze the correction. If you are trying to track an
ongoing Intermediate degree correction on a 15 minute time frame you will be confused,
exhausted, and sadly disappointed. The difficulty is that on smaller time frames you will
be tempted to label the internals of the correction in the incorrect degree. Use the proper
time frames to note the swings, then look to the smaller time frames to establish the
internals.
Do not rush the count. You must make sure the entire correction exhibits the "look and
feel" that is expected on the proper time frame for the degree you are working with.
Did it retrace far enough? Did it take an appropriate amount of time to retrace? A W4 Flat
should take at least twice as long as W2 zigzag, and perhaps up to 3-4 times as long. 
Beyond that, your wave count is suspect or you should look to a complex correction
analysis. Was the prior impulse wave particularly long or a 5 of 5?  If so, a complex
correction is more likely.
Note that the charts below are for the wave 2 and wave 4 corrections for the given degree
and not the ABC corrections following wave 5 of that degree. For the wave 5 ABC
corrections, you should look to the analysis of W2 and W4 at one higher degree.
Subminuette (Blue small case italic waves ii and iv)
Micro circle red a, b, c
Chart View Time View Indicators on 5 minute chart
Generally visible on: 3 general swings visible on 15 min chart
Clearly visible on: 5 minute shows distinct waves
~1 hour (Can be 2 to 3 times longer in indecisive areas - such
Zigzag time to complete: as ending diagonals and tops.)
~ 3-4 hours (Can be 2 to 3 times longer in indecisive  areas -
Flat time to complete: such as ending diagonals and tops.)
Hold the position and do not trade the correction. Ride it out.
As a whole correction it may be tradable on short term charts,
but it is hard to catch the swings and can’t get any predictable
meaningful profit from them. Better to just wait for the trend
Are they tradable: to resume
Minuette (Pink, parentheses small case Italic waves II and Iv)
Chart View Time 15 or 30 minute chart
Generally visible on: 3 general swings visible on hourly chart 
Clearly visible on: 15 to 30 minute charts shows distinct waves 
Zigzag time to complete: ~ 13 hours - about 2 days  
Flat time to complete: ~ 20 hours - about 3-4 days  
Are they tradable: Yes.  
Minute (Green, circle small case italic waves ii and iv )
Chart View Time Hourly Chart
Generally visible on: 3 general swings visible on 2 hour chart
Clearly visible on: 1 hour chart
Zigzag time to complete: ~ 12 to 24 hours (2-5 days)
Flat time to complete: ~ 24 to 48 hours (4 to 8 days)
Are they tradable: Clearly tradable
Minor (Red, waves 2 and 4)
Chart View Time 3-4 Hour Chart
Generally visible on: 3 swings on the daily chart
Clearly visible on: 3 hour chart shows distinct waves
Normally 7-12 days (1-2 weeks)  Longest we've seen is 43
Zigzag time to complete: days
Flat time to complete: Normally 14 -24 days (2-4 weeks)
Trading: Absolutely. These can be large corrections (DJ 500 pts, SP100
to 200).
ZIGZAGS are pretty clear and can be very profitable to trade.
 
  FLATS:  (Wave 4) can be strong in the countertrend to the
point you may question  whether you missed wave 5 and are
really in a larger ABC correction.  Frequently a visible head
and shoulders formation will form to signal the return to the
larger trend and the beginning of  (Wave 5). 
**** Complex waves and ending fifth wave diagonals are
often seen as the final culminating wave pattern (Wave C) in
this kind of larger degree corrective action.
 
DO NOT try to analyze a minor degree Flat on the 15 minute
or even 30 minute time frame. You WILL make mistakes in
the count and set yourself up for a loss. The 3 hour charts,
while not showing the messy internal structure, will show you
all you need to know to make the wave count and profit from
the trade.
Don’t Jump the gun on declaring C to be over on the 1st pivot
beyond A, as it frequently will move to one more extreme.
Borrowing from other TA, look for Wave 4 corrections to
blow through the 20 and 50 SMA and test the 100 or 200
SMA despite what the wave theory may tell you about where
they should end.  The important thing to remember on a W4
correction is to be patient and wait for confirmation that it is
over.
Intermediate (Blue, parentheses wave 2 and 4)
Chart View Time Daily Charts
Generally visible on: Monthly Charts
Clearly visible on: Weekly Charts
Zigzag time to complete: ~4~15 - 20 weeks (4 - 5 months)
Flat time to complete: ~7~25 - 45 weeks (5 - 12 months
Are they tradable: Clearly