2015issue C0210-15
Constructing five-three impulse and corrective wave counts
Elliott labeling is a construction checklist for a five-three-cycle, not a market story. The count stays on the chart only while the wave-2-floor, the wave-3-length-rule, and the wave-4-overlap test still pass.
- The five-three-cycle is the basic Elliott construction: five impulse legs treated as the action phase, then three corrective legs treated as the reaction phase.
- The numbered-phase marks impulse legs 1 through 5 at successive peaks and troughs; the lettered-phase marks the following corrective legs A through C.
- In an upward impulse, wave 2 may not travel below the starting low of wave 1, wave 3 may not be the shortest of waves 1, 3, and 5, and the wave-4 low must stay above the wave-1 high.
- Editorial reading: keep the count on the chart only while those placement tests still hold, so a later bar can end the hypothesis instead of forcing a new narrative.
A checklist, not a market story
Elliott-wave work is a chart-labeling method. It builds price movement as a five-leg action sequence followed by a three-leg reaction sequence.
Editorial reading: treat the labels as a construction checklist, not as a story about what the market intends. A five-three-cycle is allowed on the chart only after wave 2, wave 3, and wave 4 still pass their placement tests.
The five-three construction
The basic Elliott construction is a five-three-cycle: five impulse legs followed by three corrective legs.
The impulse-wave is the numbered-phase. Those five legs are marked 1 through 5 at successive peaks and troughs and are treated as the action portion of the cycle.
The corrective-wave is the lettered-phase that follows the impulse sequence. Those three legs are marked A through C and are treated as the reaction portion of the cycle.
Where the labels begin
Finding the correct starting point for the labels is presented as the main practical difficulty when building a count.
Placement tests for an upward impulse
In an upward impulse, the wave-2-floor rule says the second leg is invalid if it travels below the starting low of wave 1.
Waves 1, 3, and 5 are the upward legs. The wave-3-length-rule says wave 3 cannot be the shortest of those three.
Wave-4-overlap is the construction test that the fourth leg should not occupy the same price territory as the first leg. The low of wave 4 must stay above the high of wave 1.
The no-overlap test between wave 4 and wave 1 is described as holding about 90 percent of the time and as more often broken in highly volatile markets.
All readings on this track · 6 readings
- 1990A five-wave C finish as an Elliott count contract
- 1994Constructing impulse and corrective Elliott wave labels
- 2002When fifth-impulse rules end a bull too soon
- 2003C-wave as the final leg of an ABC correction
- 2011Treat labeled Impulse wave and Corrective wave counts as a live hypothesis
- 2015Constructing five-three impulse and corrective wave counts