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Summer School Elliott Wave Theory

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3 Cardinal Rules of the Elliott

Wave Theory

As you may have Partner Center

guessed, the key to using Find a Broker
the Elliott Wave Theory in
trading is all about being
able to correctly identify
waves.

By developing the right

eye in recognizing what wave the market is
in, you will be able to find out which side of
the market to trade on, long or short.

There are THREE cardinal “cannot-be-

broken” rules in labeling waves.

So, before you jump right into applying the

Elliott Wave Theory to your trading, you
must take note of the rules below.

Failing to label waves correctly can prove

disastrous to your account.

3 Cardinal Rules of the

Elliott Wave Theory

Rule Number #1: Wave 3 can NEVER be

the shortest impulse wave

Rule Number #2: Wave 2 can NEVER go

beyond the start of Wave 1

Rule Number #3: Wave 4 can NEVER

cross in the same price area as Wave 1

Elliott Wave Trading

Guidelines

Then, there are guidelines that help

you correctly label waves.

Unlike the three cardinal rules, these

guidelines can be broken. Here they are:

Sometimes, Wave 5 does not move beyond

the end of wave 3. This is called
truncation.

Wave 5, more often than not, goes beyond

or “breaks through” the trend line drawn off
Wave 3 parallel to a trend line connecting
the start of Waves 3 and 5.

Wave 3 tends to be very long, sharp and

extended.

Waves 2 and 4 frequently bounce off

Fibonacci retracement levels.

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