If it does, then that count is incorrect. Wave 3 must be the biggest of the 3 waves formed till that point.If it does, then that count is invalidated. Wave 2 cannot retrace the entire wave 1.For this, you need to understand some simple rules of the wave patterns: Now that you have understood what Elliott wave theory is, you need to understand how to apply this into trading. The important points to understand are:ġ) There are 5 waves in the direction of the trend, called impulse wavesĢ) There are 3 waves after that which are in the direction opposite to the trend, called corrective wavesģ) The waves are fractal in nature, which means that each wave consists of other smaller waves. If you have not understood it fully yet, we suggest that you go back to the beginning of this tutorial and read it again and again till you understand this. This, in essence, is the Elliott wave principle. This is the same for all waves, as you can see. So, in wave 5, you see the 5 smaller impulse waves while in wave 2, you see the 3 corrective waves. Where you can see that each wave consists of a set of smaller waves.
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