Wave Count
A wave count is the labeling of price movements according to Elliott Wave rules and guidelines. It is your roadmap for where the market has been and where it is likely going next. Creating a wave count means identifying each wave at every degree of trend, from the largest down to the smallest visible on your chart. A valid wave count must satisfy all three inviolable rules: Wave 2 cannot retrace beyond the start of Wave 1, Wave 3 cannot be the shortest impulse wave, and Wave 4 cannot overlap Wave 1. Beyond rules, guidelines help you rank competing counts by probability. Professional analysts always maintain multiple wave counts simultaneously. You have a preferred count, an alternate count, and sometimes a third option. Each count has different implications for the next move. When price action confirms one count and invalidates another, you adjust. The ability to hold multiple scenarios without emotional attachment is what separates profitable wave traders from dogmatic ones. Your wave count should update with every new price bar.
You are analyzing crude oil. Your preferred count shows the market in Wave 4 of a larger impulse, targeting $68. Your alternate count suggests the entire impulse completed and price is in Wave A of a new correction, targeting $62. The invalidation level for your preferred count is $65, which is the Wave 1 high. As long as price stays above $65, the preferred count holds. If price breaks $65, you immediately switch to the alternate count and adjust your trading plan. You assign 60% probability to the preferred count and 40% to the alternate based on internal structure and momentum readings.