There are none according to Elliott in The Wave Principle monograph.
The three “inviolate” rules of labeling wave patterns were developed after
his death in order to make his principle and its application more acceptable
to the left brain junkies who believe life unfolds with predictable,
mathematical precision.
Rules are usually not violated in real-time market activity. They
provide an objective guide to understand market position and to make
objective decisions. Implement the rules in your wave counts.
Occasionally, you will be betrayed by the truth of the market which
does not always follow the rules, but more times than not the “rules” will
keep your view of the market in proper perspective.
Experience will provide the knowledge and intuition when to break
the rules. But don’t be too quick to do so.
If you are going to violate the three so-called “inviolate rules” of
Elliott wave analysis, be consistent regarding those violations. For
instance, let’s take the rule that a wave four of a five wave impulse
sequence may not trade into the price range of wave one. It`s only considered
that rule violated if the suspected wave four closes within the closing
extreme of wave one, not trades into the intraday range. It`s known of other
traders who have thoroughly studied markets and only consider a trade
greater than 10% into the wave one range of many markets as a violation
of the wave four-wave one overlap rule.
So-called Elliott wave purists, or, as I call them, traditional Elliott
wave analysts, would say that expanding the parameters of this rule in
either of the above ways is not trading R. N. Elliott’s Wave Principle.
So, let you decide what you want to call it. The Elliott wave purists are
mostly academic advisors who do not apply the principle successfully to
their own trading or investing and have generally been creamed in the
stock market in the last few years calling the top of the market more
frequently than the full moon cycle.
Elliott provided a firm and original foundation for pattern analysis in
the markets. Don’t hesitate to expand on Elliott’s work when your market
research proves it necessary and profitable.
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