Elliott Wave Glossary

If you are interested in Elliott Waves or markets in general, or you are new to trading, then you will love this page. Here you will be able to find different, but most important Elliott wave terms and rules for a specific formations or Elliott wave patterns. Short description may help you to understand the theory much better. If you are interested in more advanced Elliott wave material, then check our Academy.

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A

ABC 

Another name for a three-wave, corrective or countertrend pattern.

Alternation 

Wave 2 and Wave 4 of any impulsive wave tend to be different types of corrective waves. For example, if wave 2 is a flat correction, wave 4 will often be a zig-zag or triangle.

Apex 

Intersection of the two boundary lines of a triangle

ALT / Alternate Count 

Sometimes there is more than one way to apply an Elliott Wave labeling. If that is the case, there will be a “primary” count, which is the count the Elliott Wave analyst considers with a higher probabilty, and an “alternate” count, which is less likely but still valid. It's very important to track different labelings and be prepared if something changes, or to confirm one and invalidated the other look.

B

Base Channel 

Base channel is made by three lines, primary, parallel and midline. To draw a base channel, you firstly connect the starting point of wave 1 with the end of wave 2 and put parallel line on the termination point of wave 1. If that wave 1 line is broken with a few closes outside of the channel, the base channel is confirmed. Normally this will confirm an impulsive price action as break beyond wave 1 line means that price is becoming extended and sharp which is characteristic of an extended wave 3. After a completion of an extended wave 3, the wave 4 can retrace and then stop at one of those three trendline, but in a lot of examples it will happen at the parallel/wave 1 line.

Bearish/Bullish Reversal pattern 

Reversal pattern is a pattern that shows a change in a direction. This can be an ending diagonal, or even Head and Shoulders pattern, but normally any change in trend must be confirmed by an impulsive structure. In other words, when you will read our articles and see that we write »bullish reversal« in our commentary, that simply means that most likely trend has change because we recognized a minor impulsive reaction from a new low or high through the important support or resistance levels.

Barrier Triangle 

Same as contracting triangle but the B-D trendline is horizontal. Also called ascending or descending depending on direction.

C

Confirmation level 

That’s the level where the Elliott wave count is confirmed. Per example; break beyond wave B confirms a completion of a corrective price action. Or move out of a channel suggests a breakout.

Choppy price action 

The choppy price action is both sided price action, where prices are moving up and down, slowly or quickly and in large moves or small moves within a trading range.

Corrective channel 

Corrective channel is made by two trendline lines. The first primary line connects starting point of wave A and end of wave B, and then the parallel line is put on the end of wave A. Normally wave C will end at that parallel line to complete a corrective retracement.

Countertrend move 

It’s price action that is against the higher degree trend, normally against the previous impulse. It’s correction; only temporary retracement.

Elliott wave channel 

Is a parallel channel, where you connect the ends of waves 2 and 4 and then put a parallel line at the end of wave 3. Wave 5 will ideally touch that line connected from wave 3. In some cases that parallel line for the 5th wave projection point can also be placed on top of wave 1.

Contracting Triangle 

Corrective pattern with converging trendlines, subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs in wave 4, B, X or Y wave.

Corrective Wave 

A three-wave pattern, or combination of three-wave patterns, that moves in the opposite direction of the trend of one larger degree.

D

Double Three 

Combination of two simple sideways corrective patterns, labeled W and Y, separated by a corrective wave labeled X.

Double Zig-Zag 

Combination of two zigzags, labeled W and X, separated by a corrective wave labeled X.

E

Elliott wave channel 

Is a parallel channel, where you connect the ends of waves 2 and 4 and then put a parallel line at the end of wave 3. Wave 5 will ideally touch that line connected from wave 3. In some cases that parallel line for the 5th wave projection point can also be placed on top of wave 1.

Expanding Triangle 

Same as contracting triangle "Corrective pattern with converging trendlines, subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs in wave 4, B, X or Y wave" But trendlines diverge as pattern progresses.

Elliott Wave Triangle 

Corrective pattern with converging trendlines, subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs in wave 4, B, X or Y wave.

Expanded Flat 

Flat correction in which wave B moves to a new high in a bull market or new low in a bear market.

Extension 

Most impulses contain what Elliott called an extension. An extension is an elongated impulse with exaggerated subdivisions. The vast majority of impulses contain an extension in one and only one of their three actionary subwaves. The fact that extension typically occurs in only one actionarysubwave provides a useful guide to the expected lengths of upcoming waves. For instance, if the first and third waves are about equal length, the fifth wave will likely be a protracted surge. Conversely, if wave three extends, the fifth should besimply constructed and resemble wave one. In the market, the most commonly extended wave is wave 3.

Ending Diagonal 

A wedge shape in wave 5 or wave C, sometimes even in wave Y. Substructure is 3:3:3:3:3.

Elliott Wave Diagonal 

A wedge-shaped pattern containing overlap that usually occurs as a fifth or C wave and occasionally occurs as a first wave of an impulse, or in A wave of correction.

Elliott Wave Cycle 

An important feature of Elliott Wave is that they are fractal in nature. 'Fractal' means market structure isbuilt from similar patterns on a larger or smaller scale. Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart. Full Elliott Wave cycle is in 8 wave; 5 in impulse 3 as a correction.

F

Five-wave cycle 

Normally a motive wave that shows direction of a trend. It’s an 1-2-3-4-5 pattern which can be even overlapped between waves 2 and 4 if it´s diagonal pattern.

Forex 

The foreign exchange (also known as forex or FX) market is a global marketplace for exchanging national currencies. Because of the worldwide reach of trade, commerce, and finance, forex markets tend to be the largest and most liquid asset markets in the world. Currencies trade against each other as exchange rate pairs. Forex trading is available to retail traders through broker’s platforms.

Flat 

Sideways correction labeled A-B-C. Subdevides 3-3-5.

I

Invalidation level 

That’s the most important level of the valid Elliott wave count. If that level is broken then it means that count is not valid and that some other valid count is playing out. In ideal scenarios these levels are also stop-losses of potential trades based on the Elliott wave theory.

Impulse Elliott Wave channel 

Is a parallel channel, where you connect ends of waves 2 and 4 and then put parallel line at the end of wave 3. Wave 5 will ideally touch that line connected from wave 3. In some cases that parallel line for 5th wave projection point can also be placed on top of wave 1.

Impulse channel 

Is a parallel channel, where you connect the ends of waves 2 and 4 and then put a parallel line at the end of wave 3. Wave 5 will ideally touch that line connected from wave 3. In some cases that parallel line for the 5th wave projection point can also be placed on top of wave 1.

Irregular 

Flat correction in which wave B moves to a new high in a bull market or new low in a bear market.

Impulse Extension 

Most impulses contain what Elliott called an extension. An extension is an elongated impulse with exaggerated subdivisions. The vast majority of impulses contain an extension in one and only one of their three actionary subwaves. The fact that extension typically occurs in only one actionarysubwave provides a useful guide to the expected lengths of upcoming waves. For instance, if the first and third waves are about equal length, the fifth wave will likely be a protracted surge. Conversely, if wave three extends, the fifth should besimply constructed and resemble wave one. In the market, the most commonly extended wave is wave 3.

Impulse Rules 

Elliott noted three consistent aspects of the five-wave form. They are:

  • Wave 2 should not break below the beginning of Wave 1.
  • Wave 3 should not be the shortest wave among Wave 1, 3 and 5.
  • Wave 4 should not overlap with Wave

L

Leading Diagonal 

A wedge shape in wave A, or wave 1. Substructure is normaly 5:3:5:3:5. In rare cases the stucture can even by 3:3:3:3:3.

M

Motive Wave 

A five-wave pattern that moves in the same direction as the trend of one larger degree, i.e., any impulse or diagonal.

O

Overlapping price action 

It’s where moves are not clear or directional. It’s a special form where despite higher high or lower lows price returns back into the previous ranges. Such overlaps shows that bulls are either struggling in uptrend or bears in downtrend, and it can suggest that sooner or later price will return into the primary direction with an impulsive activity. Normally you will spout an overlapping price action in Elliott wave corrections, but also it can show up between the waves two and four in diagonals.

Overlap 

The entrance by wave four into the price territory of wave one. Sometimes, the momentum at Wave 5 is so weak that the 2nd and 4th sub-waves overlap with each other and evolved into diagonal triangle.

P

Parallel channel 

Channel that is made by two trendline lines. A channel is drawn using parallel lines between the support and price resistance.

Bearish/Bullish Reversal pattern 

Reversal pattern is a pattern that shows a change in a direction. This can be an ending diagonal, or even Head and Shoulders pattern, but normally any change in trend must be confirmed by an impulsive structure. In other words, when you will read our articles and see that we write »bullish reversal« in our commentary, that simply means that most likely trend has change because we recognized a minor impulsive reaction from a new low or high through the important support or resistance levels.

Previous Fourth Wave 

The fourth wave within the preceding impulse wave of the same degree. Corrective patterns typically terminate in this area.

R

Running 

A structure that occur in a flat or triangle in which wave B goes beyond the start of wave A, and wave C does not go below the end of wave A.

S

Sideways Correction 

Slow price action in a tighter range. A corrective pattern that can also contain a price extreme meeting or exceeding that of the prior impulse wave. Its the opposite than the sharp correction.

Sharp Correction 

Any corrective pattern that does not contain a price extreme meeting or exceeding that of the ending level of the prior impulse wave; alternates with sideways correction.

T

Throw-over 

Strong move within a fifth wave that breaks the end of wave 1 and 3 line. We call it a throw-over when price reverses later and moves back into the channel or diagonal. If volume makes a spike top, it can signal a major reversal.

Triple Zig-Zag 

Combination of three zigzags, labeled W, Y and Z, each separated by a corrective wave labeled X.

Triple Three 

Combination of three simple sideways corrective patterns labeled W, Y and Z, each separated by a corrective wave labeled X.

Thrust 

Impulsive wave following completion of a triangle.

Elliott Wave Triangle 

Corrective pattern with converging trendlines, subdividing 3-3-3-3-3 and labeled A-B-C-D-E. Occurs in wave 4, B, X or Y wave.

Third of a Third 

Normally powerful and sharp price move in the middle of a higger degree impulse.

Truncated Fifth 

Its a failure in a structure, where wave 5 does not move beyond wave 3 ending point. For valid truncated formation you still need five subwaves within wave 5.

Z

Elliott Wave Zig-Zag 

Sharp correction, labeled A-B-C. Subdivides 5-3-5

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