Wave 4 interpretation

Wave 4 must not enter the price territory of wave 1 (except in a diagonal)

  • Can you have a very slight overlap without violating the rule?  Yes. This is not really an exception to the rule, but rather the manner in which the rule is defined.  Elliott developed the wave theory using a close only price chart, not HLC or candlestick charts. Wicks did not come into consideration.  Therefore, unless the price of wave 4 enters the body of the Wave 1 pivot, there has been no violation of the rule.  This mode of interpretation may further be warranted given that trading is highly computerized these days and the enemy computers will clearly "gun" for the stops people place immediately inside of the wave 1 because of this rule.

Overlap Alternatives

  • If W4 violates the rule that it can never overlap with W1, you must now re-label the waves so as to adhere to the rules and guidelines.  Most importantly, you must do so in a manner that does not reflect any bias as to the direction you would prefer.  What is the next most probable formation.  Generally, this translates into what is the simplest formation.
  • As with all wave counts, when selecting your alternative count, avoid grasping at the rare formations to form an answer. Yes, ending diagonals and triple Zigzags do occur, but you shouldn't immediately jump to the conclusion that it must be a complex or rare formations as your answer.  You should always be forced into selecting one of the rare formations because nothing simple works.
  • Alternative counts include:
Wave 1 Structure



Wave4 Triangle