Rule 3 (Wave 4)
Elliott Wave Theory glossary · Rule Of Alternation & Channeling Guidelines
Definition
Wave 4 does not enter the price territory of Wave 1 in a standard impulse. Overlap indicates a diagonal or invalid count.
Rule 3 (Wave 4) in plain English
Elliott Wave Theory says a strong trend moves in five waves: three pushes forward (waves 1, 3, 5) and two pullbacks (waves 2 and 4). Rule 3 is a hard line in the sand: wave 4's pullback is never allowed to drop back down into the price range that wave 1 covered. Think of climbing a staircase where each rest-step must stay above the first step you took — if your 'rest' sinks back onto that first step, you weren't really climbing a clean staircase. When that overlap happens, the pattern isn't a standard impulse; it's either a special wedge-shaped 'diagonal' or you've mislabeled the waves and need to recount.
Also called: Wave 4
Learn these first
Related Elliott Wave Theory terms
Elliott Wave Theory practice questions · Elliott Wave Theory flashcards · Elliott Wave Theory study guide