Elliott Wave Theory: Rules, Impulse Waves, and Corrections Ep 3.2

Elliott Wave Theory is a powerful framework for decoding market structure, identifying trend-driving impulses, and spotting corrective pullbacks. In this beginner’s guide, we’ll cover what constitutes a wave, how a 5-wave impulse unfolds, the 3-wave correction, and the key rules you can’t break. Stat with our first blog on elliot here. The website and various platforms such as spotify, youtube and x.com are being used to propagate and effortless education.
Fig. 1: Typical Elliott Wave impulse and correction sequence.

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What Is a Wave in Elliott Wave Theory?

A wave is the price moving from point A to point B without changing direction. Whether the market is climbing or falling, any uninterrupted swing counts as one wave under Elliott Wave Theory.

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The 5-Wave Impulse Pattern

1. Wave 1 – Starts the trend upward
2. Wave 2 – Corrective pullback (cannot retrace > 100% of Wave 1)
3. Wave 3 – Strongest impulse (must not be the shortest of Waves 1, 3, 5)
4. Wave 4 – Another pullback (cannot overlap Wave 1 territory)
5. Wave 5 – Final trend thrust (often a “lazy” finish. Blasts only towards end)

Impulse waves (1, 3, 5) drive the trend; corrective waves (2, 4) pause it.

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The 3-Wave Correction (A–B–C)

After Wave 5, the market corrects in three waves:

• Wave A – Initial decline (impulse)
• Wave B – Countertrend retracement (corrective)
• Wave C – Final decline (impulse; often sharp)

Within A–B–C, Waves A & C subdivide into 5 smaller waves; Wave B into 3.

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Three Unbreakable Rules of Elliott Wave Theory

1. Wave 2 can never retrace more than 100% of Wave 1.
2. Wave 3 cannot be the shortest of Waves 1, 3, and 5.
3. Waves 1 and 4 must not overlap (except in rare ending diagonals).

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Further Reading & Resources

Outbound Link: Read the original work by Ralph Nelson Elliott on Wikipedia

Internal Link: Dive deeper into Advanced Elliott Wave Rules

Internal Link: See our video on youtube on Elliot Wave Theory Elliot Wave Theory Ep 3.2

Outbound Link: Learn more on Investopedia’s article on Elliott Wave Theory