THE ELLIOTT WAVE GUIDELINE OF ALTERNATION

The Elliott Wave guideline of alternation states that: "if wave two of an impulse is a sharp retracement, expect wave four to be a sideways correction, and vice versa. "

This is a very useful observation not only to help you anticipate what may be coming next but it can also give you another piece of information to help you to confirm where you are in the count. In the case of the VXX I had mentioned on November 22nd that "Based on the wave structure of the wave ii of this move down off of the 33.27 high I would expect wave iv to take the form of a flat corrective pattern. So more of a correction through time rather than price may be in order. "

This comment and observation was made before we had even confirmed that we had a bottom in place for wave iii.  The fact that we have seen a flat correction through time rather than price at the exact fib level that we would expect to see a wave iv gives us a relatively high probability that we are indeed following through on the primary count which is suggestive that we are in a flat fourth wave and not something else.

In addition to helping us confirm where we are in the count knowing this rule of alternation can help us plan trades. This can be especially true of planning shorter term option trades as if we did indeed have a sharp wave 2 retrace we would not want to very short term option trades until we saw a clear impulse to start the first wave of the fifth wave coming out of the fourth wave consolidation.

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