Key Points
- Elliott Wave Theory is a market cycle framework that breaks moves into impulses (5 waves) and corrections (ABC).
- Impulse waves: 1, 3, and 5 push in the trend direction, 2 and 4 are pullbacks.
- Core Elliott Wave rules: Wave 2 cannot retrace beyond the start of Wave 1, Wave 3 cannot be the shortest impulse wave, Wave 4 usually does not overlap Wave 1 in a standard impulse.
- ABC corrections: A is the first counter-trend move, B is the partial retrace, C is the second counter-trend move that often completes the correction.
- Elliott Wave is fractal, waves appear on multiple timeframes, so you must define your timeframe first.
- Elliott Wave is not a certainty machine, it is a structured way to map probabilities and invalidations.
- If any terms feel unfamiliar, use the Crypto Glossary for quick definitions, then return to this lesson.
Quick Answer
Elliott Wave Theory is a technical analysis framework that describes market movement as repeating cycles of trend waves and corrective waves. In crypto, it is commonly used to map trend progression using a 5 wave impulse (Waves 1 to 5) and a 3 wave correction (A, B, C). The main value is structure, it helps you identify whether a move looks like trend continuation or a correction, and it gives clear invalidation points based on wave rules. Elliott Wave is best treated as a context tool alongside support and resistance, trend direction, and momentum, because wave counts can be subjective.
Where This Lesson Fits
Lesson 47 introduced Wyckoff and showed how accumulation and distribution help you read market phases through ranges and traps. Lesson 48 builds on that cycle thinking, Elliott Wave gives you a way to map trending phases and corrective phases in a more structured sequence.
This lesson is part of the Technical Analysis for Beginners series. For the full lesson map and all supporting guides, visit the Technical Analysis for Beginners Hub.
What Elliott Wave Theory Is Really Saying
Markets do not move in straight lines.
They move in pushes and pauses.
Elliott Wave is a way to label those pushes and pauses with a consistent framework.
That reaction can come from:
- trend expansion phases where momentum builds
- corrective phases where the market resets
- repeated behaviour across timeframes, because humans repeat behaviour
The goal is not to predict every candle.
The goal is to reduce chaos into a map you can test.
The 5 Wave Impulse Explained
An impulse is the main trend move.
It usually appears as five waves:
- Wave 1, initial push in the trend direction
- Wave 2, pullback
- Wave 3, trend continuation push
- Wave 4, pullback
- Wave 5, final push before a correction begins
Mark:
Wave 2 and Wave 4 are not “failures”, they are pauses that often reset momentum before continuation.
Elliott Wave Rules For A 5 Wave Impulse
These are the beginner rules that keep you honest.
Core rules:
- Wave 2 cannot retrace beyond the start of Wave 1
- Wave 3 cannot be the shortest of Waves 1, 3, and 5
- Wave 4 typically does not overlap Wave 1 in a standard impulse (exceptions exist, but beginners should treat overlap as a warning)
If your count breaks these rules, the count is wrong.
That is the whole point, it gives you invalidation.
Elliott Wave Guidelines That Help Counts Make Sense
Guidelines are not rules, but they help you avoid forcing labels.
Useful guidelines:
- Wave 3 is often the strongest and most directional
- Wave 2 and Wave 4 often show alternation (one is sharp, the other is more sideways)
- Wave 5 can be strong, or it can be weaker and “grindy”, both happen
Treat guidelines as supporting evidence, not as law.
ABC Correction Pattern Explained
After an impulse, markets often correct in three waves.
ABC correction pattern explained:
- Wave A is the first move against the prior trend
- Wave B is the partial retrace, often convincing people the trend is back
- Wave C is the second move against the trend, often the part that completes the correction
Corrections come in different flavours, but ABC is the foundation.
Common Correction Types You Will See
You do not need to master every variation to use Elliott Wave.
Start with the common ones.
The common correction families:
- Zigzag, sharp correction, often strong A and C
- Flat, more sideways correction where B can retrace a lot
- Triangle, tightening range that often appears in later correction stages
If the correction looks messy and sideways, do not panic, that is normal.
A Beginner Elliott Wave Counting Workflow
This is the cleanest approach for this series.
Step 1: pick your timeframe first, daily, 4H, weekly, then stick to it.
Step 2: mark the obvious swing low and swing high that define the move.
Step 3: label only what is clear, impulse 1 to 5 or correction A, B, C.
Step 4: apply the rules, if the rules break, relabel.
Step 5: confirm with levels and trend tools you already learned, do not rely on the wave count alone.
That reaction can come from:
- forcing a count to match a bias
- relabelling constantly until it “looks right”
- forgetting that wave degrees exist across multiple timeframes
Worked Example You Can Apply To Any Altcoin Chart
Open any liquid altcoin chart on TradingView (for example, SOL/USDT, AVAX/USDT, or a major L2).
Then do this:
Mark:
- find the last clear trend push that moved from one major level to another
- check whether it looks like a 5 wave impulse (push, pullback, push, pullback, push)
- if price then drifts lower or chops sideways, test whether it fits ABC
If you cannot label it cleanly, that is also information, it often means the market is ranging or correcting in a complex way.
Common Traps To Avoid
- counting waves on tiny timeframes where noise dominates
- ignoring the core rules and keeping a broken count
- treating Elliott Wave as prediction instead of structure
- confusing a choppy range with an impulse sequence
- using Elliott Wave alone without support and resistance context
A clean Elliott count should make your chart simpler, not more confusing.
Mini FAQs
What is Elliott Wave Theory in crypto?
Elliott Wave Theory is a framework that maps market cycles into 5 wave impulses and 3 wave corrections (ABC) across multiple timeframes.
What are the Elliott Wave rules for a five wave impulse?
Wave 2 cannot retrace beyond the start of Wave 1, Wave 3 cannot be the shortest impulse wave, and Wave 4 usually does not overlap Wave 1 in a standard impulse.
What is an Elliott Wave ABC correction?
A 3 wave corrective move where A is the first counter-trend move, B is the partial retrace, and C often completes the correction.
How do you do an Elliott Wave count for beginners?
Choose a timeframe, mark obvious swings, label only clear impulse or ABC phases, then apply the rules to invalidate weak counts.
Is Elliott Wave reliable?
It can be useful as a structure tool, but wave counts can be subjective, so it works best with levels, trend direction, and momentum confirmation.
Elliott Wave vs Wyckoff, what is the difference?
Wyckoff focuses on accumulation and distribution behaviour inside ranges, Elliott Wave focuses on sequence and rhythm of impulses and corrections across timeframes.
Next Lesson
In this lesson you learned how Elliott Wave frames market cycles using 5 wave impulses and ABC corrections, the core impulse rules that invalidate bad counts, and a beginner workflow that keeps wave labelling simple and consistent.
Next, Lesson 49 introduces Market Profile, taking volume analysis deeper by showing where trading activity concentrates, and how value areas help frame acceptance and rejection:
For the full lesson map and all supporting guides, visit the Technical Analysis for Beginners Hub.
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Legal And Risk Notice
This content is for education and information only and should not be considered financial, legal, or tax advice. Crypto assets are volatile and high risk. You are responsible for your own research and decisions, and you should consider seeking independent professional advice where appropriate.
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