Editing Elliott wave principle (section)

==Wave rules and guidelines==
A correct Elliott wave count must observe three rules:
*Wave 2 never retraces more than 100% of wave 1.
*Wave 3 cannot be the shortest of the three impulse waves, namely waves 1, 3 and 5.
*Wave 4 never enters the price territory of wave 1
A common guideline called "alternation" observes that in a five-wave pattern, waves 2 and 4 often take alternate forms; a simple sharp move in wave 2, for example, suggests a complex mild move in wave 4. Alternation can occur in impulsive and corrective waves. Elliott observed that alternate waves of the same degree must be distinctive and unique in price, time, severity, and construction. 
All formations can guide influences on market action. The time period covered by each formation, however, is the major deciding factor in the full manifestation of the Rule of Alternation. A sharp counter-trend correction in wave 2 covers a short distance in horizontal units. This should produce a sideways counter-trend correction in wave 4, covering a longer distance in horizontal units, and vice versa. Alternation provides analysts a notice of what not to expect when analyzing wave formations.

Corrective wave patterns unfold in forms known as zigzags, flats, or triangles. In turn these corrective patterns can come together to form more complex corrections.<ref name=Frost/> Similarly, a triangular corrective pattern is formed usually in wave 4, but very rarely in wave 2, and is the indication of the end of a correction.<ref>Steven W. Poser  Applying Elliot Wave Theory Profitably - Page 8 0471420077
- 2003 - Preview - More editions: A subwave is a wave of lesser degree in time and price. All waves, except the tiniest actions (such as would be found on a one-minute bar chart or a tick chart), break down into even smaller waves. This is commonly referred to as the fractal 5 nature of stock price movement. Some scientists have found evidence of fractals in market prices as well, relating the patrems to chaos theory. One of the most common errors I have seen made in applying EWT is to assume that five-wave cycles</ref>