Elliott Wave and Wave Formation Guidelines
The guidelines presented throughout this chapter are analyzed and illustrated in the context of a bull market. Except where they are specifically excluded, they are applied equally in bear markets, in which context illustrations and implications would be reversed.
The alternation guide is very broad in its application and warns the analyst that you should always expect a difference in the next expression of a similar wave. Hamilton Bolton said:
The writer is do not convinced that the alternation is inevitable in wave types in larger formations, but there are cases frequent enough to suggest that one should look for it instead.
Although the alternation does not say precisely what is going to happen, it gives a valuable warning of what do not wait and, therefore, it is useful to consider when analyzing wave formations and assessing future probabilities. Mainly he tells the analyst not to assume, as most people usually do, that because the last cycle of the market behaved in a certain way, surely this will be the same. As the "opposites" never cease to point out, the day when most investors "capture" an apparent market habit is the day when it will change to a completely different one. However, Elliott went further by stating that, in fact, alternation was practically a law of markets.
Alternation within an impulse
If wave two of an impulse is an acute correction, expect wave four to be a lateral correction, and vice versa. Figure 2-1 shows the most characteristic breakdowns of an impulse wave, either up or down, as the alternation guide suggests. Acute corrections never include a new extreme price, that is, one that is beyond the orthodox end of the preceding impulse wave. They are almost always zigzags (single, double or triple); occasionally they are triple that start with a zigzag Side corrections include planes, triangles and double and triple corrections. They usually include a new extreme price, that is, one that lies beyond the orthodox end of the preceding impulse wave. In rare cases, a regular triangle (one that does not include a new extreme price) in the position of the fourth wave will take the place of a sharp correction and alternate with another type of lateral pattern in the position of the second wave. The idea of alternation within an impulse can be summed up by saying that one of the two corrective processes will contain a movement backwards or beyond the end of the previous impulse, and the other will not.
A diagonal shows no alternation between rounds 2 and 4. Normally, both corrections are zigzag. An extension is an expression of alternation, since the motor waves alternate their lengths. Usually, the first one is short, the third one extends and the fifth one is short again. An extension, which normally occurs as wave 3, sometimes occurs as wave 1 or 5, another manifestation of alternation.
Alternation within the corrective waves
If a correction begins with a flat construction a-b-c for wave A, wait for a zigzag formation a-b-c for wave B and vice versa (see Figures 2-2 and 2-3). With a moment of reflection, it is obvious that this fact is sensible, since the first illustration reflects an upward bias in both subwaves while the second reflects a downward bias.
Very often, when a large correction begins with a simple zigzag a-b-c for wave A, wave B will extend into a zigzag a-b-c more intricately subdivided to achieve a type of alternation, as in Figure 2-4. Sometimes the C wave will be even more complex, as in Figure 2-5. The reverse order of complexity is somewhat less common. An example of its occurrence can be found on wave 4 in Figure 2-16.
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