Elliot Wave Rules - Five wave pattern

Hey Guys,

Continuing on my technical analysis journey, I think that my analyses have been only partially correct so i thought it would be a good idea to research and sum up what some of the rules behind Elliot wave theory starting with the Five wave pattern. (I didn't get much time to add all the pictures i wanted into this post but I will update in the coming days.)

Five Wave Pattern Rules and Indicators

• Wave 1 : Wave one is rarely obvious at its inception.

• Wave 2 : Wave two corrects wave one, but can never extend beyond the starting point of wave one (see image below). Also the volume should be lower during wave two than during wave one and prices usually do not retrace more than 61.8% Fibonacci retracement.

• Wave 3 : Wave three is usually the largest and most powerful wave in a trend. Wave three often extends wave one by a ratio of 1.618:1

• Wave 4 : Wave four is typically clearly corrective. Wave four typically retraces less than 38.2% of wave three. Volume is well below than that of wave three.

• Wave 5 : Wave five is the final leg in the direction of the dominant trend. Volume is often lower in wave five than in wave three, and many momentum indicators start to show divergences (prices reach a new high but the indicators do not reach a new peak).