Rules & Mistakes
Core rules, pro tips and common pitfalls in elliott wave analysis and trading geometry.
Overview
This chapter consolidates the rulebook: the three inviolate rules that define valid impulse structures, helpful guidelines that improve accuracy, and the common mistakes traders make when applying Elliott Wave Theory in live markets.
The Three Inviolate Rules
- Rule 1: Wave 2 never retraces more than 100% of Wave 1 — if it does, the count is invalid.
- Rule 2: Wave 3 can never be the shortest among Waves 1, 3 and 5 — measure by price distance.
- Rule 3: Wave 4 never overlaps Wave 1 price territory (except in diagonals).
Guidelines & Pro Tips
Guidelines increase probability but are not absolute. Use them together with structure and momentum.
- Alternation: Wave 2 deep → Wave 4 shallow (and vice versa).
- Volume behavior: Expect higher volume during Wave 3; Wave 5 often shows divergence.
- Equality: Wave 1 ≈ Wave 5 is a useful projection for targets.
- Channeling: Draw 1–3 / 2–4 channels to check geometry and potential invalidation zones.
Common Mistakes (and how to avoid them)
- Forcing counts to match bias: keep an alternate count and publish both.
- Labeling mid-swing: wait for completion or clear invalidation.
- Ignoring internal structure: always check subwave counts (5 vs 3).
- Misreading diagonals: diagonals allow 1 / 4 overlap — treat differently.
- Switching timeframes mid-count: keep one primary degree for the analysis.
Quick Pre-Publish Checklist
Use this checklist before finalizing a public analysis or trade plan:
- 3 rules confirmed (no invalidity)
- Internal subwaves checked (5 vs 3)
- Alternation verified for Wave 2 / Wave 4
- Fibonacci targets computed
- Momentum confirmation (RSI/MACD) checked
- Alternate counts documented
🔑 Key Takeaways
- Rules are non-negotiable — they invalidate counts.
- Guidelines increase conviction but never replace structure.
- Document alternates and remain objective — that’s how your edge develops.