Elliott Wave Theory Rules
In simple terms, traders can view wave theory as the change of three blocks: 1. Shape: the transition between upward waves and corrective waves
2. Proportion: the proportional changes between upward waves and corrective waves
3. Time: the analysis of the duration between two waves and changes in balance
The rules of waves in bullish and bearish markets generally indicate that Elliott Wave Theory still has its fundamental rules; however, the market is ever-changing. The following presents the three iron rules for bulls and bears to share with traders. When you notice that the price trend contradicts the iron rules, please be sure to raise your awareness and pay attention to the applicability of wave theory.
Bullish Three Iron Rules:
◑ The low of Wave 2 cannot fully retrace below the low of Wave 1 (false breakout)
◑ Wave 3 is usually a relatively long wave among the driving waves
◑ The low of Wave 4 cannot overlap with the peak of Wave 1 (cannot break below the neckline)
Bearish Three Iron Rules:
◑ The recovery of Wave b must be less than the peak of Wave a (false breakdown)
◑ Wave c is usually large in amplitude and duration, with a large overall trading volume
◑ When Wave c rebounds, the highest point cannot overlap with the lowest point of Wave a
