close icon

Where to start your Elliott Wave count from?

The Elliott Wave Principle gives best results only when it is correctly applied. Furthermore, it does not provide mechanical signals like most other technical approaches. In order to be able to see the present situation with all the probable alternative counts, one must have trained eye, creative imagination and patience. Once mastered, the Wave Principle becomes a beautiful symbiosis between art and science.
Counting Elliott waves is very similar to recognizing different fragments of a whole and putting them together. The good thing is that you have a limited number of fragments, grouped in two categories – motive waves and corrective waves. Under motive waves there are regular impulses and diagonals. There are three types of corrective patterns – zig-zags, flats and triangles. According to the Elliott Wave Principle, motive waves are followed by corrective waves and vice versa. So, if you want to count the subwaves of a correction, you have to start your count from the end of the previous motive wave. If you want to count the five subwaves of the motive phase, you start from the end of the previous correction. Let’s take a look at some examples. On the first chart below you can see a complete 5-3 Elliott Wave cycle. Note how the two phases of trend – motive and corrective – fit together to form the whole pattern.
elliott wave counts example 1
The above-shown chart depicts a very clear impulsive five, labeled 1-2-3-4-5, followed by the corresponding three-wave retracement, which, in this case, takes the form of a double zig-zag, marked with w-x-y. This example shows how the correction starts after the end of the impulse. Now we will demonstrate how the impulsive phase begins after the end of the correction.
elliott wave counts example 2
Note that in the first case, the corrective phase starts from the extreme (top) of wave 5, while in the second one, the motive phase starts from the extreme (bottom) of the wave Y. That is how we put the two pieces of the puzzle together. It probably looks quite easy so far. But what happens if you spot an impulse on a chart with the idea to wait for the retracement and attack the trend resumption, but it never comes? Let’s examine one such situation.
elliott wave counts example 3
Having a clear five-wave rally, you would assume that a correction is in progress. After its end you would expect the uptrend to continue. This is what happens instead:
elliott wave counts example 4
Prices fall much lower than expected and the bullish scenario is ruined. Those, who have just started learning the Elliott Wave Principle, would probably blame it on the method immediately. On the other hand, the minority, that had spent enough time studying it, would go to a bigger time frame, in order to see the whole forest, not only the surrounding trees.
elliott wave counts example 5
And the bigger time frame makes it clear. The bullish idea failed, because the impulse we were looking at was the last fragment – wave (5) – of a larger five-wave sequence. And we know, that after every five waves there should be a correction. Same pattern, different degree.
The important thing to remember here is that you should always be aware of where does the fragment/wave you are looking at fit into the bigger picture. And, of course, always use a protective stop-loss order.
In conclusion, the right approach when making an Elliott Wave analysis, is to start from the largest degree possible and then go all the way down to the smallest waves and fit them all together.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

How to Recognize a Leading Diagonal Pattern

One of the first Elliott Wave patterns we devoted an entire lesson to was the ending diagonal. It is relatively easy to recognize and very important, because it is usually followed by a sudden trend reversal. But if there is an ending diagonal, there must be a leading diagonal, as well, right? Yes, there is…

Read More »

Elliott Wave: The Devil Is In the Details

Probably the strongest argument critics use against the Elliott Wave Principle is that traders could often come up with two or more sometimes equally probable scenarios for the market’s future direction. That is true. In an environment filled with uncertainty, it is not always easy to pick just one single count. In fact, we suggest you…

Read More »

The Mischievous Running Flat Correction

In “Expanding Flat and How to Avoid Its Traps” we examined probably the most common type of flat correction the markets could offer. It is easy to spot and relatively easy to trade. However, if you are constantly expecting the expanding variety, you are not going to be prepared for its exotic, but deceptive cousin…

Read More »

Why Waiting For Confirmation? A Tale Of Greed

Every trader with enough experience in the market usually comes to the conclusion, that he needs a system of rules to go by. Rules, which should not let him abandon his discipline and get emotional while trading. Every trading methodology has one such system, which tells you when to go in and out of the market.…

Read More »

What Is Fundamentally Wrong With Fundamentals?

Can you guess which country has the best-performing global stock market so far in 2015? Germany? Japan? USA? Nope. The Business Insider came up with the “surprising” answer yesterday. It is Russia. Yes, Russia – a country in a state of war, whose currency has been suffering terribly against the US dollar and the euro. If…

Read More »

When Does an Elliott Wave Setup Fail?

As a rule, you should never give up on a trade, if it still has the potential to develop in your favor. But how to determine, if a trade is no longer valid? Fundamental market analysis does not provide such information at all. Conventional technical analysis rarely gives you a concrete level for the protective stop. Only…

Read More »

How to recognize an unreliable support?

“The support level is an area below the current price, which has prevented it from falling further in the past. That is why we would usually expect prices to bounce up from it again, when this support level is reached in the future.” This is the short definition of a support level and how traders…

Read More »

More analyses