The three absolute rules that every impulse wave must satisfy. Any count that violates these rules is invalid: (1) Wave 2 does not retrace beyond wave 1 start; (2) Wave 3 is never the shortest; (3) Waves 1 and 4 do not overlap.
Description
Three rules are absolute in Elliott Wave Theory — no exception is permitted. If a proposed count violates any of these rules, it must be discarded and an alternative count found. These rules distinguish a valid impulse from other wave patterns.
Checklist
- ✅ Rule 1: Wave 2 never retraces more than 100% of wave 1. Wave 2 cannot end below (above in a downtrend) the starting point of wave 1.
- ✅ Rule 2: Wave 3 is never the shortest actionary wave (when measured in price). Wave 3 may not be shorter than both wave 1 and wave 5.
- ✅ Rule 3: In a standard impulse, wave 4 does not overlap with the price range of wave 1. (Exception: the 1st and 2nd sub-waves of a diagonal may overlap.)
- ❌ Invalid: Wave 2 retraces beyond the start of wave 1 → count is wrong
- ❌ Invalid: Wave 3 is shorter than both wave 1 and wave 5 → count is wrong
- ❌ Invalid: Wave 4 and wave 1 price ranges overlap in a standard impulse → count is wrong (consider diagonal)
Key Points
- These three rules are absolute — no exceptions exist (unlike guidelines which are tendencies)
- If a rule is violated, the wave is not an impulse — look for a diagonal or corrective pattern instead
- A diagonal allows wave 1 and 4 overlap (and is the main exception to Rule 3)
- The rules apply regardless of degree or market
