The complete dictionary of Elliott Wave terminology. 137 terms covering wave fundamentals, patterns, Fibonacci math, technical analysis, trading, and market structure.
The shallowest common Fibonacci ratio, derived from dividing a Fibonacci number by the number three positions ahead. Used to identify very shallow retracements that indicate extreme trend strength.
A key Fibonacci ratio derived from dividing a Fibonacci number by the number two positions ahead. It is the most common retracement level for Wave 4 corrections and represents moderate trend strength.
The inverse of the golden ratio (1/1.618). It is the single most important ratio in Elliott Wave analysis. Wave 2 commonly retraces 61.8% of Wave 1, making this the primary level for identifying Wave 2 completion.
The square root of 0.618. This ratio marks deep retracements and is often the last defense before a wave count is invalidated. Wave 2 occasionally retraces to 78.6% of Wave 1 in strong corrective moves.
The golden ratio itself. Wave 3 commonly extends to 1.618 times the length of Wave 1. It is the primary projection target for Wave 3 and serves as confirmation that an extension is underway.
The most important Fibonacci extension level in Elliott Wave analysis. Wave 3 frequently extends to exactly 161.8% of Wave 1. This level serves as both a target for Wave 3 and a confirmation that an extension is underway.
Wave 1 moves from $100 to $110 ($10). The 161.8% extension projects Wave 3 to reach $116.18 from the end of Wave 2.
The square of the golden ratio (1.618 x 1.618). Used to project strongly extended Wave 3 targets when the market shows exceptional momentum. Less common than 1.618 but significant when reached.
The shallowest common Fibonacci retracement level. When a correction only reaches the 23.6% level, it indicates extreme strength in the underlying trend. Rarely seen as the sole retracement target for Wave 2 or Wave 4.
A key Fibonacci retracement level and the most common target for Wave 4 corrections. When Wave 4 retraces exactly 38.2% of Wave 3, it suggests a strong trend that is likely to produce a dynamic Wave 5.
The cube of the golden ratio (1.618 x 2.618). Used to project the most extreme Wave 3 extensions in rare, parabolic market moves. Seen primarily in commodities and high-momentum growth stocks.
The 'golden retracement' level and the most common target for Wave 2 corrections. Derived from the golden ratio (1/1.618 = 0.618). When price reaches this level, it is often the deepest retracement before the next impulse wave begins.
A steeper channel drawn once Wave 3 exceeds the base channel. It connects the ends of Wave 1 and Wave 3, with a parallel drawn from Wave 2. Useful for tracking momentum expansion.
A market breadth indicator that tracks the cumulative difference between advancing and declining stocks. A rising A/D line during an impulse wave confirms broad participation; divergence at a Wave 5 high warns of an approaching correction.
The excess return of an investment relative to its benchmark index. In Elliott Wave trading, alpha is generated by identifying high-probability wave setups that the broader market has not yet recognized.
A guideline suggesting that if Wave 2 is a sharp correction, Wave 4 will likely be a sideways correction, and vice versa. This principle helps traders anticipate the type of correction to expect.
If Wave 2 was a sharp zigzag dropping 61.8%, Wave 4 might unfold as a flat or triangle.
A triangle variation with a flat upper boundary and rising lower boundary. In Elliott Wave context, this is a form of barrier triangle where the upper trendline acts as resistance while the lows compress upward.
A triangle variation where one trendline is horizontal while the other converges toward it. The flat boundary acts as a barrier that price tests repeatedly before breaking out.
The initial channel drawn from the start of Wave 1 through the end of Wave 2, with a parallel projected from the end of Wave 1. Used to confirm the early impulse and project Wave 3 targets.
In Elliott Wave context, a bear market represents the corrective phase (waves A-B-C) that follows a completed five-wave advance. The entire decline is labeled as a three-wave structure at the larger degree.
A measure of a stock's volatility relative to the overall market. High-beta stocks tend to produce more extended Wave 3 moves and deeper Wave 2 corrections, requiring adjusted position sizing.
A price movement below a defined support level or pattern boundary. In bearish Elliott Wave structures, breakdowns often confirm Wave C initiation or the start of a new impulsive decline.
A price movement above a defined resistance level or pattern boundary, typically accompanied by increased volume. In Elliott Wave context, breakouts often confirm the start of Wave 3 or the completion of a triangle.
A five-wave impulse advance at a large degree. In Elliott Wave terms, the motive phase of the cycle where prices trend upward in five distinct waves before a corrective phase begins.
A price range bounded by two parallel trendlines. In Elliott Wave analysis, channels help project wave targets and confirm the integrity of a developing impulse or correction.
A technique where parallel trendlines are drawn connecting the ends of waves to project potential reversal zones. A channel drawn from the end of Wave 2 through Wave 4 often projects the terminus of Wave 5.
Draw a line from the end of Wave 1 to Wave 3, then a parallel line from Wave 2. Wave 5 often terminates near this upper channel line.
A complex sideways correction made up of two or three simple corrective patterns linked by X waves. The individual components can be zigzags, flats, or triangles (triangle only in the final position).
A corrective pattern consisting of two or three simple corrective patterns joined by connecting waves labeled X. Examples include double zigzags (W-X-Y), double threes, and triple threes (W-X-Y-X-Z).
A period where price moves sideways within a defined range. In Elliott Wave terms, consolidation often corresponds to Wave 4 corrections, triangles, or flat patterns before the final wave.
A five-wave sideways pattern (A-B-C-D-E) where each successive wave is shorter than the previous one, forming converging trendlines. It typically appears in Wave 4 or Wave B position.
A stock forms a triangle in Wave 4 where Wave A is $8, Wave B is $6.50, Wave C is $5, Wave D is $3.50, and Wave E is $2.50.
A general market decline of 10% or more from a recent high. In Elliott Wave terms, corrections are the A-B-C structures that follow completed five-wave impulses. They reset sentiment before the next impulse begins.
A three-wave structure that moves against the trend of the next larger degree. Corrective waves are labeled A-B-C and include patterns like zigzags, flats, and triangles. They appear as Waves 2 and 4 within impulse sequences.
The statistical measure of how two securities move in relation to each other. Low correlation between portfolio holdings reduces risk during unexpected wave invalidations.
One of the nine degrees of wave patterns identified by Elliott. Cycle degree waves typically span one to several years and are labeled with Roman numerals (I, II, III, IV, V).
The hierarchical classification of wave patterns by their relative size. Elliott identified nine degrees from Grand Supercycle (largest) to Subminuette (smallest). Each wave of one degree subdivides into waves of the next smaller degree.
A triangle variation with a flat lower boundary and declining upper boundary. The horizontal support acts as a floor while the highs compress downward. Often seen in bearish Wave 4 positions.
A motive pattern with overlapping waves that forms a wedge shape. Leading diagonals appear in Wave 1 or Wave A position; ending diagonals appear in Wave 5 or Wave C position. Both subdivide into five waves.
An ending diagonal in Wave 5 shows converging trendlines with each sub-wave being a three-wave structure, signaling the final exhaustion of the trend.
A disagreement between price action and a technical indicator. Bullish divergence occurs when price makes a lower low but the indicator makes a higher low. Bearish divergence is common at Wave 5 tops.
Spreading investments across multiple securities, sectors, or asset classes to reduce risk. In wave-based investing, diversification across instruments at different wave stages limits drawdown if one count fails.
A complex correction consisting of two simple corrective patterns connected by one X wave, labeled W-X-Y. The components can be any combination of zigzags, flats, or triangles (triangle only as Y).
A complex corrective pattern consisting of two zigzag formations connected by a Wave X. Labeled W-X-Y, where both W and Y are zigzags. Typically produces a steeper correction than a single zigzag.
The peak-to-trough decline in portfolio value before a new high is reached. Tracking drawdown helps wave analysts assess whether their position sizing and stop-loss strategy are appropriately calibrated.
The theory developed by Ralph Nelson Elliott in the 1930s that financial markets move in recognizable patterns reflecting the natural rhythm of crowd psychology. Markets advance in five waves and correct in three waves at all degrees of trend.
A wedge-shaped pattern appearing in the Wave 5 or Wave C position. It consists of five waves where each sub-wave subdivides into three (3-3-3-3-3). Both trendlines converge, and Wave 4 overlaps Wave 1 territory. It signals exhaustion of the larger trend.
AAPL forms an ending diagonal in Wave 5 where price squeezes between converging trendlines before a sharp reversal.
The price range where a trader plans to initiate a position based on wave analysis. In Elliott Wave, entry zones are typically placed at Fibonacci retracement levels of the prior wave, such as 50%-61.8% of Wave 1 for a Wave 2 entry.
A corrective pattern where Wave B exceeds the start of Wave A, and Wave C extends well beyond the end of Wave A. The most common type of flat correction, often appearing in Wave 4 position. Structured as 3-3-5.
In a bullish trend, Wave A drops to $150, Wave B rallies above the prior high to $162, then Wave C plunges to $142, extending beyond Wave A.
When one of the impulse waves (1, 3, or 5) subdivides into an elongated impulse with exaggerated subdivisions. Wave 3 extensions are most common in stock markets. The extended wave is typically 161.8% or more of the next longest wave.
A Wave 3 extension in NVDA runs $80 while Waves 1 and 5 are each approximately $30.
Curved lines drawn from a swing high to a swing low using Fibonacci ratios. The arcs represent potential support or resistance zones that account for both price and time.
A zone where multiple Fibonacci levels from different wave measurements converge. Clusters indicate high-probability reversal areas because several independent calculations agree.
Price projections beyond 100% of a measured wave move. Common extension levels are 127.2%, 161.8%, 200%, and 261.8%. Used to project where Wave 3, Wave 5, or Wave C might terminate.
If Wave 1 travels $10, the 161.8% extension projects Wave 3 to reach $16.18 from the start of Wave 1.
A set of trendlines drawn from a single point through Fibonacci retracement levels of a measured move. Fans help identify dynamic support and resistance as price moves over time.
A method of projecting price targets by measuring the length of one wave and applying a Fibonacci ratio to project the next wave from a different starting point. Commonly used to project Wave C from the end of Wave B.
Price levels derived from the Fibonacci sequence where corrective waves are likely to find support or resistance. Key retracement levels are 23.6%, 38.2%, 50%, 61.8%, and 78.6%. Wave 2 commonly retraces 50%-61.8% of Wave 1.
After a $20 Wave 1 advance, Wave 2 pulls back to the 61.8% retracement level ($12.36) before Wave 3 begins.
Vertical lines placed at intervals derived from the Fibonacci sequence (1, 1, 2, 3, 5, 8, 13, 21...). They mark potential points in time where significant wave completions or reversals may occur.
A three-wave corrective pattern (A-B-C) where Wave A is three waves, Wave B retraces most or all of Wave A, and Wave C is five waves. Flats tend to be more sideways than zigzags. Three types exist: regular, expanded, and running.
The self-similar nature of Elliott Wave patterns. Each wave contains smaller versions of the same five-wave and three-wave structures. A Wave 3 on a weekly chart subdivides into a complete five-wave impulse on the daily chart.
The ratio 1.618 (phi), derived from the Fibonacci sequence. It is the mathematical foundation of Elliott Wave relationships. Wave 3 often equals 1.618 times Wave 1, and Wave 2 commonly retraces 61.8% (the inverse of 1.618) of Wave 1.
The largest degree of wave pattern identified by Elliott, spanning several centuries. The current Grand Supercycle bull market is believed to have begun around 1784 in Western financial markets.
A swing high that exceeds the previous swing high, confirming an uptrend. In Elliott Wave, successive higher highs in waves 1, 3, and 5 validate a bullish impulse structure.
A swing low that remains above the previous swing low, confirming uptrend continuation. In impulse waves, Wave 4 forming a higher low above Wave 2 is a characteristic pattern.
In market structure context, a sharp and sustained price move in one direction. This aligns with Elliott Wave impulse waves (1, 3, or 5) that drive price forcefully along the trend.
A five-wave motive pattern (1-2-3-4-5) that moves in the direction of the trend at the next larger degree. Impulse waves have three strict rules: Wave 2 never retraces 100% of Wave 1, Wave 3 is never the shortest impulse wave, and Wave 4 never enters Wave 1 price territory.
A bullish impulse: Wave 1 rallies, Wave 2 corrects, Wave 3 surges (longest), Wave 4 consolidates, Wave 5 makes the final push higher.
A wave degree typically lasting weeks to months. Labeled with parenthesized numbers (1), (2), (3), (4), (5) for motive waves and (A), (B), (C) for corrective waves.
The price level at which a wave count is proven wrong. For example, if a Wave 4 count is proposed, the invalidation level is the peak of Wave 1 because Wave 4 cannot overlap Wave 1 in an impulse. Professional analysts always mark invalidation levels.
A bullish Wave 3 count is invalidated if price drops below the start of Wave 1.
Companies with a market capitalization above $10 billion. Large-cap stocks tend to follow Elliott Wave patterns more cleanly due to higher liquidity and broader participation.
A wedge-shaped motive pattern appearing only in the Wave 1 or Wave A position. It consists of five overlapping waves (either 5-3-5-3-5 or 3-3-3-3-3). Leading diagonals signal the beginning of a new trend and are relatively rare.
A swing high that fails to exceed the previous swing high. A series of lower highs signals a downtrend and is characteristic of bearish corrective or impulse structures.
A swing low that drops below the previous swing low, confirming a downtrend. In a bearish impulse, waves 1, 3, and 5 each make successively lower lows.
Moving Average Convergence Divergence, a momentum indicator that shows the relationship between two moving averages. In Elliott Wave, MACD divergence between Wave 3 and Wave 5 is a primary signal of trend exhaustion.
The number of stocks advancing versus declining in a market. Strong breadth during Wave 3 confirms the impulse, while weak breadth during Wave 5 signals exhaustion and an approaching correction.
The total market value of a company's outstanding shares, calculated by multiplying the share price by the number of shares. Market cap determines which category (large, mid, small) a stock falls into.
Companies with a market capitalization between $2 billion and $10 billion. Mid-cap stocks can show more volatile wave structures than large caps, with sharper Wave 3 extensions and deeper Wave 2 retracements.
A wave degree typically lasting days to weeks. Labeled with Arabic numerals (1, 2, 3, 4, 5) and letters (a, b, c) without any additional notation.
A wave degree typically lasting minutes to hours. It sits between Minute and Subminuette in the degree hierarchy and is used in short-term intraday analysis.
A wave degree typically lasting hours to days. Labeled with circled Roman numerals for motive waves and circled lowercase letters for corrective waves.
The rate of change in price movement. In Elliott Wave analysis, momentum typically peaks during Wave 3 and weakens during Wave 5, creating divergence signals that confirm wave completion.
When price makes a new high (or low) but momentum indicators (RSI, MACD) do not confirm. In Elliott Wave analysis, divergence between Wave 3 and Wave 5 is extremely common and signals that Wave 5 is completing.
Any wave pattern that propels prices in the direction of the next larger degree trend. Motive waves always subdivide into five sub-waves. The two types of motive patterns are impulse waves and diagonal waves.
A smoothed price line calculated over a specific number of periods. Moving averages act as dynamic support and resistance levels. In Elliott Wave, price commonly tests key moving averages during Wave 2 and Wave 4 corrections.
The requirement that in a standard impulse, Wave 4 must not enter the price territory of Wave 1. This rule separates impulse waves from diagonal patterns, where overlap is permitted.
When Wave 4 enters the price territory of Wave 1. In a standard impulse, overlap invalidates the count. In diagonal patterns, overlap between Waves 1 and 4 is expected and required.
The distribution of capital across different investments. Wave-based allocation adjusts exposure based on which wave stage each holding occupies, increasing size in confirmed Wave 3 setups and reducing it in late Wave 5 positions.
The process of determining how many shares or contracts to buy based on account size, risk tolerance, and the distance to the invalidation level. Proper position sizing ensures no single trade can cause catastrophic loss.
A wave degree typically lasting months to a few years. Labeled with circled numbers for motive waves and circled letters for corrective waves.
A temporary price decline within an ongoing uptrend. In Elliott Wave context, pullbacks correspond to corrective waves (Wave 2, Wave 4, or Wave B) within a larger impulse structure.
A sustained upward price movement. In Elliott Wave, rallies correspond to impulse waves (1, 3, 5) within a bullish trend or to Wave B counter-rallies within bearish corrections.
The price area between a defined support and resistance level where price oscillates sideways. Ranges often correspond to corrective Wave 4 structures or B-wave consolidation periods.
A flat corrective pattern where Wave B retraces approximately 90-100% of Wave A, and Wave C is approximately equal in length to Wave A. The rarest type of flat correction.
A price level where selling pressure tends to prevent further price increases. In Elliott Wave, Wave 3 targets and previous Wave 5 highs often serve as key resistance levels.
When price returns to a previously broken support or resistance level to confirm the breakout. In Elliott Wave, retests often occur as part of Wave 2 after a Wave 1 breakout.
The practice of identifying, assessing, and controlling trading risks. In Elliott Wave, risk management relies on defined invalidation levels, position sizing, and portfolio diversification.
The ratio between the potential loss (distance to stop loss) and potential gain (distance to target). Elliott Wave setups at Wave 2 bottoms typically offer 3:1 or better risk-reward because the invalidation is close and the Wave 3 target is distant.
Relative Strength Index, a momentum oscillator that measures the speed and magnitude of price changes on a scale of 0 to 100. RSI above 70 signals overbought conditions; below 30 signals oversold. Divergence with price at Wave 5 extremes is a key signal.
A rare flat correction where Wave B exceeds the start of Wave A (like an expanded flat), but Wave C fails to reach the end of Wave A. This indicates extreme strength in the direction of the larger trend.
A triangle where Wave B exceeds the start of Wave A. This is a strong continuation pattern that indicates the trend will resume with force after the triangle completes.
The movement of investment capital from one sector to another based on economic cycle positioning. In Elliott Wave context, different sectors may be at different wave stages, creating rotation opportunities.
A corrective pattern that retraces deeply and quickly, typically a zigzag or double zigzag. Sharp corrections are common in the Wave 2 position and usually retrace 50% to 78.6% of the prior impulse.
A measure of risk-adjusted return calculated by dividing excess return by portfolio standard deviation. A higher Sharpe ratio indicates better return per unit of risk taken.
A corrective pattern that moves mostly horizontally with relatively shallow retracement. Flats and triangles are typical sideways corrections. They are common in the Wave 4 position.
A single corrective pattern (zigzag, flat, or triangle) as opposed to a complex correction that combines multiple patterns with X waves.
Companies with a market capitalization under $2 billion. Small-cap stocks often exhibit more irregular wave patterns due to lower liquidity, making accurate counting more challenging.
A predetermined price level at which a position is closed to limit loss. In Elliott Wave trading, stop losses are placed at invalidation levels such as the start of Wave 1 (for long positions entered at Wave 2).
The internal wave structure within any single wave. Every wave at one degree subdivides into waves of the next smaller degree. Identifying correct subdivisions is essential for accurate wave counting.
The smallest wave degree commonly tracked, typically lasting minutes to hours. Used primarily in intraday trading analysis.
A wave degree spanning multiple decades (typically 40-70 years). Labeled with parenthesized Roman numerals (I), (II), (III), (IV), (V).
A price level where buying pressure tends to prevent further price declines. In Elliott Wave, the end of Wave 1 is a critical support level that Wave 4 must not violate in a standard impulse.
A local price peak formed when a high is flanked by lower highs on both sides. Swing highs mark potential wave endpoints, particularly Wave 1, Wave 3, and Wave 5 termination points.
A local price trough formed when a low is flanked by higher lows on both sides. Swing lows mark potential Wave 2 and Wave 4 completion points and serve as invalidation reference levels.
The projected price level where a trade is expected to reach its objective. In Elliott Wave, targets are derived from Fibonacci extensions and wave equality measurements.
Another name for an ending diagonal. It appears in the final wave position (Wave 5 or Wave C) and signals that the larger pattern is completing. Followed by a sharp reversal.
A sharp price move out of a corrective pattern, particularly a triangle. The post-triangle thrust in Wave 5 often equals the widest part of the triangle (Wave A) in price magnitude.
A straight line connecting two or more price points, used to identify the direction and speed of a trend. In Elliott Wave, trendlines drawn from Wave 2 through Wave 4 project where Wave 5 may terminate.
A five-wave sideways corrective pattern labeled A-B-C-D-E. Triangles form converging (contracting), diverging (expanding), or running patterns. They appear exclusively in Wave 4 or Wave B position and always precede the final wave of the larger pattern.
A contracting triangle in Wave 4: each swing (A through E) gets progressively smaller, and the breakout from Wave E launches the final Wave 5.
The most complex corrective pattern, consisting of three simple corrections connected by two X waves: W-X-Y-X-Z. Each component (W, Y, Z) can be any corrective pattern except a triangle (only Z can be a triangle). Rare in practice.
A complex correction consisting of three zigzags connected by two X waves, labeled W-X-Y-X-Z. This produces a very deep and extended correction. It is the rarest of the complex corrective patterns.
When Wave 5 fails to exceed the end of Wave 3. Truncations occur after an extremely powerful Wave 3. The Wave 5 subdivides into five waves but falls short of making a new high (or low). This signals exceptional weakness.
After a massive Wave 3 rally of $50, Wave 5 only manages $2 beyond Wave 3, barely making a new high before a major reversal.
The degree of price variation over time. Higher volatility typically occurs during Wave 3 (motive phase) and Wave C (corrective phase), while lower volatility characterizes Wave 4 triangles and consolidation patterns.
The number of shares or contracts traded during a given period. In Elliott Wave, volume typically expands during Wave 3, contracts during Wave 4, and shows divergence during Wave 5.
The first impulse wave in a five-wave sequence. Wave 1 is often the hardest to identify in real-time because it emerges from the end of a prior correction. It subdivides into five smaller waves and establishes the new trend direction.
The first corrective wave in an impulse sequence. Wave 2 retraces a portion of Wave 1 but never retraces beyond its starting point. Common retracements are 50%-61.8% of Wave 1. Wave 2 corrections tend to be sharp (zigzags).
An absolute rule stating that Wave 2 can never retrace more than 100% of Wave 1. If price moves beyond the starting point of Wave 1, the wave count is invalidated. This is one of the three inviolable rules of Elliott Wave analysis.
Usually the longest and most powerful impulse wave. Wave 3 is never the shortest of waves 1, 3, and 5. It commonly extends to 161.8% of Wave 1 and often features the strongest momentum, highest volume, and widest price bars.
In AAPL, Wave 1 moves $10, Wave 2 retraces $6.18, then Wave 3 surges $16.18 (161.8% of Wave 1).
An absolute rule stating that Wave 3 can never be the shortest of the three impulse waves (1, 3, and 5). Wave 3 does not need to be the longest; it simply cannot be the shortest. If it appears shorter than both waves 1 and 5, the count is wrong.
The second corrective wave within an impulse sequence. Wave 4 never overlaps with Wave 1 price territory (strict rule). It commonly retraces 38.2% of Wave 3. Wave 4 corrections tend to be sideways (flats and triangles), alternating with Wave 2.
An absolute rule stating that in an impulse wave, Wave 4 cannot enter the price territory of Wave 1. The low of Wave 4 must remain above the high of Wave 1 in a bull market (and vice versa in a bear market). The only exception is in diagonal patterns.
The final impulse wave in the motive sequence. Wave 5 completes the trend and is often equal in length to Wave 1 or reaches 61.8% of the net distance from Wave 1 through Wave 3. It typically shows momentum divergence and lower volume than Wave 3.
The first wave of a corrective sequence (A-B-C). Wave A establishes the corrective trend direction. It can subdivide into either five waves (in a zigzag) or three waves (in a flat).
The second wave of a corrective sequence. Wave B moves against the corrective trend direction, often trapping traders who mistake it for a trend resumption. In expanded flats, Wave B exceeds the start of Wave A. Wave B always subdivides into three waves.
The final wave of a corrective sequence. Wave C always subdivides into five waves and often equals Wave A in length or extends to 161.8% of Wave A. It typically represents the most dynamically powerful part of the corrective phase.
The labeling of price movements according to Elliott Wave patterns. A wave count identifies which wave the market is currently in and projects future price movements. Professional analysts maintain multiple wave counts ranked by probability.
The fourth wave within a triangle pattern (A-B-C-D-E). Wave D retraces a portion of Wave C and helps define the triangle's converging trendlines. It must stay within the boundaries set by the prior waves.
The fifth and final wave of a triangle pattern. Wave E often falls short of the trendline drawn from waves A and C, creating a 'throw-under.' The completion of Wave E signals an imminent breakout in the direction of the larger trend.
A guideline stating that two of the three impulse waves (1, 3, 5) tend to be equal in price magnitude. When Wave 3 extends, waves 1 and 5 tend toward equality. Useful for projecting the length of Wave 5.
A connecting corrective wave that joins two simple corrections in a complex pattern. Wave X is typically a brief, shallow correction (often a zigzag). In W-X-Y patterns, Wave X connects the first correction (W) to the second (Y).
A converging price pattern that narrows over time. In Elliott Wave context, wedges are classified as diagonal patterns. They signal exhaustion when appearing in Wave 5 or C, and trend initiation when appearing in Wave 1 or A.
The labeling convention for a double correction (double three or double zigzag). W is the first corrective pattern, X is the connecting wave, and Y is the second corrective pattern.
The labeling convention for a triple correction (triple three or triple zigzag). W, Y, and Z are the three corrective patterns, connected by two X waves. This is the most complex corrective structure.
A sharp three-wave corrective pattern labeled A-B-C where Wave A and Wave C are impulse waves (five sub-waves each) and Wave B is a corrective wave (three sub-waves). Zigzags are structured as 5-3-5 and typically retrace 50%-61.8% of the prior impulse wave.
After a $30 rally, a zigzag correction unfolds: Wave A drops $12 in five waves, Wave B bounces $5 in three waves, then Wave C drops another $10 in five waves.
The three inviolable rules are: (1) Wave 2 never retraces more than 100% of Wave 1, (2) Wave 3 is never the shortest impulse wave, and (3) Wave 4 never enters Wave 1 price territory in an impulse pattern.
The 61.8% retracement (golden ratio) is the most important level. Wave 2 commonly retraces 61.8% of Wave 1, and Wave 3 often extends to 161.8% of Wave 1.
Impulse waves move in the direction of the larger trend and consist of five sub-waves (1-2-3-4-5). Corrective waves move against the trend and consist of three sub-waves (A-B-C). Impulse waves are labeled with numbers, corrective waves with letters.
Elliott identified nine degrees of waves: Grand Supercycle (centuries), Supercycle (decades), Cycle (years), Primary (months-years), Intermediate (weeks-months), Minor (days-weeks), Minute (hours-days), Minuette (hours), and Subminuette (minutes).
A truncation occurs when Wave 5 fails to exceed the high of Wave 3 (in a bull market). It signals extreme weakness and typically happens after an exceptionally powerful Wave 3. Truncations are followed by sharp reversals.
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