Keep a wave count as a draft until money flow and a trendline agree

A wave count maps candidate turning zones

Elliott wave structure is described as a five-wave advance of impulse waves 1, 3, and 5 plus corrective waves 2 and 4, followed by a three-wave decline labeled a, b, and c. Each wave is subdivisible into smaller degrees, so the same hierarchy can appear at more than one scale on the same chart.

Common numerical relationships cited for wave magnitudes include 0.382, 0.500, 0.618, and 1.618. The top of wave 3 is described as very commonly measuring 1.618 times the wave 1 advance. Those Fibonacci relationships locate possible turning zones. They do not, on their own, decide whether a zone is live.

Editorial reading: keep the finished count as a draft map of where a turn might occur, not as a completed trade hypothesis.

Money flow is an independent second reading

Money flow index is calculated from the day-to-day change in average price. Positive and negative money flow are accumulated, the money ratio is positive divided by negative money flow, and the index equals 100 minus 100 divided by one plus that ratio.

The index is read with the same methods used for relative strength, including readings above 70 or below 30, divergences, failure swings, and patterns that appear in the indicator before they appear in price.

Oscillators are described as less useful in trending markets than during consolidations. An indicator should be checked for applicability to the current market condition and to the security under review before its reading is allowed to confirm or reject a wave zone.

In the 1993-1994 worked example, a 23-period money flow index diverged from a new price high near 13.00, failed to break a new downtrend on the indicator, and later failed again on a bounce. That sequence was treated as evidence that the decline was not complete.

After a five-wave advance from about 8.00 to 13.00, a 38.2% retracement implied 11.00 and a 50% retracement implied 10.50, while a 1.618 relation of wave c to wave a implied a minimum target near 8.95. The recorded low of the first decline was 10.38.

A trendline event supplies the third check

A trendline is a straight line through successive price highs or lows and is treated as a support or resistance area. Its significance increases with how long it remains intact and how many data points define it.

Significant penetration of a trendline is interpreted as a reversal or a slowing of the trend. Some technicians look for a 3% to 5% violation of the price level.

After a relatively steep uptrend line is broken, prices frequently attempt one final rally toward prior highs, then treat the former uptrend line as overhead resistance. That support-resistance flip is the kind of event the checklist looks for at a wave-ratio zone.

Confluence makes the hypothesis falsifiable

Editorial reading: a level becomes a live, falsifiable hypothesis only when three independent tools agree at the same price zone. Wave ratios name the zone. The money-flow reading must confirm or fail independently of the count. A trendline break, hold, or flip must occur at that same area.

Disagreement among the three keeps the wave map in draft form. Confluence is agreement among those independent checks, not a stronger version of any one of them.