Don’t forget the EW rules and guidelines.
You must constantly keep in mind the Elliott wave rules and guidelines as
a market unfolds in order to be alert to if a pattern is a correction or an
impulse and where it should be within the correction or impulse. The rules
and guidelines are few and simple. Be alert to the subdivisions (smaller
degree) of each wave to help identify when a wave is at or near its
termination. The EW rules and guidelines will also give you what pattern
structure will confirm and invalidate a wave pattern.
Identify The Main Divisions
Take a look at the data below. For just this data, can we determine if the
market is making an impulsive trend or a correction? What would be the
definitive signal that would confirm which it is?
Rather than immediately begin to put labels on the chart, the first thing
to do is identify different degrees of change. For the bearish period of this
data, there are two rallies that stand out as greater in time and/or price
than the others. They are probably of the same degree and a larger
degree than the minor corrections.
Very simply, we have a declining section, sideways correction, another
declining section and a rally. Is the last rally that began at the May 22 low
a correction or the beginning of a bull trend? Can we tell which it should
be from this data alone?
The next chart includes the obvious labels for the trends and countertrends
of similar degree we have identified so far.
The three completed pivots of similar degree should be W.1 or A, W.2
or B and W.3 or C. From just this data, there is no way to tell if it is a 1-2-3
or A-B-C. We may be biased one way or the other depending on how
confident we are of the potential wave pattern up to the May 17 high, but
lets assume we do not have a confident opinion. What can the market do
from a pattern perspective to signal if the May 22 low completed an ABC
or if it is just a W.3 in a bear trend?
A W.4 should not trade into the range of the W.1. If the S&P traded
above 1091.50, the potential W.1 low, it would indicate May 22 is a W.C
low, not a W.3. If this should happen, the larger degree trend should be up
and the S&P should continue to advance to above the May 17 high.
If the S&P first traded below 1075.70, the potential W.3 low, we must
assume it is making an impulsive five-wave trend and the larger degree
trend is down.
We could get very creative with labeling the small subdivisions and
minor swings on this data. The clear fact is – there is no clearly defined
sub-division pattern for the data above. We could make the subdivision
labels almost anything we want to fit any one outlook. That is what many
Elliott wave analysts do. Force a wave count to fit the forecast. For this
data, the 1-2-3 or A-B-C count is the only reliable one at this time.
Read next >>> Always Keep In Mind The EW Rules and Guidelines
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