Price Action · Classical · 1930s · Swing / Position
Reads a trending market as a repeating rhythm: five waves in the direction of the trend, followed by three waves correcting against it. Elliott developed it from studying decades of stock market data, and it remains one of the most widely referenced — and most argued-about — frameworks in technical analysis.
The five-wave ‘impulse’ alternates with the trend (waves 1, 3, 5) and against it (waves 2, 4), governed by a small set of rules: wave 2 can't retrace past the start of wave 1, wave 3 is never the shortest of the three trend waves, and wave 4 shouldn't move back into wave 1's price territory. Once the impulse completes, a three-wave A-B-C correction typically follows before the next impulse begins.
The first leg of the move — often small, and easy to dismiss as just another bounce until the structure that follows confirms it.
A corrective pullback. Elliott's rule: wave 2 can retrace deep, but it must not revisit the very start of wave 1.
The move extends past the wave 1 high and keeps going. Wave 3 is typically the longest, most powerful leg — and by Elliott's rule, it's never the shortest of the three impulse waves.
Another pullback, usually shallower than wave 2. It shouldn't overlap wave 1's price territory — if it does, the count is probably wrong.
The last leg of the impulse, often with less momentum than wave 3 even as price prints a new high — a sign the move is closer to exhaustion than it looks.
A three-wave corrective sequence follows: a decline (A), a partial recovery (B), and a final decline (C) — often ending back near wave 4's territory before the next impulse, if the pattern repeats, begins.
Illustrative example only — not real market data.
The chart above walks through a full cycle. In practice, the hardest part of Elliott Wave isn't learning the rules — it's that the same price action can often be labelled more than one valid way in real time, which is the strategy's most common criticism.