The guidelines presented throughout this chapter are discussed and illustrated in the context of a bull market. Except where specifically excluded, they apply equally in bear markets, in which context the illustrations and implications would be inverted.
The guideline of alternation is very broad in its application and warns the analyst always to expect a difference in the next expression of a similar wave. Hamilton Bolton said,
The writer is not convinced that alternation is inevitable in types of waves in larger formations, but there are frequent enough cases to suggest that one should look for it rather than the contrary.
Although alternation does not say precisely what is going to happen, it gives valuable notice of what not to expect and is therefore useful to keep in mind when analyzing wave formations and assessing future probabilities. It primarily instructs the analyst not to assume, as most people tend to do, that because the last market cycle behaved in a certain manner, this one is sure to be the same. As "contrarians" never cease to point out, the day that most investors "catch on" to an apparent habit of the market is the day it will change to one completely different. However, Elliott went further in stating that, in fact, alternation was virtually a law of markets.
Alternation Within An Impulse
If wave two of an impulse is a sharp correction, expect wave four to be a sideways correction, and vice versa. Figure 2-1 shows the most characteristic breakdowns of an impulse wave, either up or down, as suggested by the guideline of alternation. Sharp corrections never include a new price extreme, i.e., one that lies beyond the orthodox end of the preceding impulse wave. They are almost always zigzags (single, double or triple); occasionally they are double threes that begin with a zigzag. Sideways corrections include flats, triangles, and double and triple corrections. They usually include a new price extreme, i.e., 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 price extreme) in the fourth wave position will take the place of a sharp correction and alternate with another type of sideways pattern in the second wave position. The idea of alternation within an impulse can be summarized by saying that one of the two corrective processes will contain a move back to or beyond the end of the preceding impulse, and the other will not.
A diagonal does not display alternation between subwaves 2 and 4. Typically both corrections are zigzags. An extension is an expression of alternation, as the motive waves alternate their lengths. Typically the first is short, the third is extended, and the fifth is short again. An extension, which normally occurs as wave 3, sometimes occurs as wave 1 or 5, another manifestation of alternation.
Alternation Within Corrective Waves
If a correction begins with a flat a-b-c construction for wave A, expect a zigzag a-b-c formation for wave B, and vice versa (see Figures 2-2 and 2-3). With a moment’s thought, it is obvious that this occurrence is sensible, since the first illustration reflects an upward bias in both subwaves while the second reflects a downward bias.
Quite often, when a large correction begins with a simple a-b-c zigzag for wave A, wave B will stretch out into a more intricately subdivided a-b-c zigzag to achieve a type of alternation, as in Figure 2-4. Sometimes wave C will be yet more complex, as in Figure 2-5. The reverse order of complexity is somewhat less common. An example of its occurrence can be found in wave 4 in Figure 2-16.
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