A framework for reading trend structure, with real caveats.

Elliott Wave theory holds that markets move in repeating patterns of five waves in the direction of the larger trend (an impulse), followed by three waves against it (a correction). Within the five-wave impulse, waves 1, 3, and 5 move in the trend's direction, while waves 2 and 4 are smaller counter-trend pullbacks.

A commonly cited rule within impulse waves is that wave 3 is never the shortest of the three trending waves (1, 3, and 5), and wave 2 typically doesn't retrace beyond the start of wave 1 — these structural rules are part of what practitioners use to label a given wave count as valid or invalid.

Impulse waves are read as the market's primary trending structure, with the five-wave count expected to repeat at different scales — a single wave within a larger impulse can itself be composed of five smaller waves, which is where wave degree (below) becomes relevant.

Following a five-wave impulse, Elliott Wave theory describes a three-wave corrective structure (labelled A, B, C) that moves against the prior trend before the next impulse begins. Corrective waves come in several named sub-patterns — zigzags, flats, and triangles being the most commonly referenced — each with a different internal structure.

Corrective waves are generally considered harder to label and predict in real time than impulse waves, since their sub-patterns are more varied and the theory itself acknowledges more structural flexibility in how a correction can unfold.

In practice, this is one of the more commonly cited weaknesses of applying Elliott Wave theory prospectively — a corrective structure is often much easier to identify clearly after it has completed than while it's still unfolding.

Elliott Wave theory holds that the five-wave impulse / three-wave correction pattern repeats fractally across different timeframes, or 'degrees' — a single wave on a weekly chart might itself be composed of a full five-wave impulse when viewed on a daily or hourly chart.

This fractal structure is part of what makes the theory flexible enough to apply across timeframes, but it's also part of what makes wave counts subjective — the same price history can often be labelled with more than one plausible wave count at different degrees, especially in the middle of an unfolding move.

Practitioners typically anchor a wave count to a higher-degree structure first (the broader trend) before trying to label smaller sub-waves within it, since starting from smaller degrees without that context tends to produce less reliable counts.

Elliott Wave theory's biggest practical criticism is that wave counts are often ambiguous in real time — the same price action can frequently be labelled as being in more than one point of the wave cycle, and a count can require revision as new price data comes in, which limits its use as a precise, mechanical trading signal.

Because of this ambiguity, Elliott Wave analysis is generally used by practitioners as a framework for context — a way to think about where price might be within a larger structure — rather than as a standalone, rules-based system that generates unambiguous entry and exit signals on its own.

It's most commonly combined with other tools, particularly Fibonacci retracement and extension levels, which are used to estimate the likely size of individual waves within a count — the two techniques are frequently discussed together in practice.