By using channeling, Waves of the same degree can be recognized. Channels are parallel lines, which more or less contain the complete price movement of a wave. Although the trend lines of a Triangle are not parallel lines, they will also be considered as a channel.

Here’s some of the example of a channel in an impulsive wave and all channels in a corrective wave :-

How to Draw Channels and How to Project Targets Using Channels ?

Targets for wave 3 or C
To begin with you should draw a channel as soon as waves 1 and 2 are finished. Connect the origin of wave 1, which has been labeled as zero, and the end of wave 2. Then draw a parallel line from the top of wave 1.

Generally this channel is regarded as not being very useful, but it is. First of all, the parallel line serves as an absolute minimum target for the 3rd wave under development. If the 3rd wave cant break through the upper line or fails to reach it, you are probably dealing with a C wave instead of wave 3.

Furthermore the base line from 0 to wave 2 serves as a stop. When this base line gets broken, there is a strong probability that wave 2 (or B) gets more complex, thus wave 3 or C has not begun yet.

Keep in mind that wave 3 is normally the strongest wave and often will go far beyond the upper trend line.

Targets for wave 4

As soon as wave 3 is finished you can draw a channel by connecting the end of wave 1 and wave 3 with a trend line and drawing a parallel line from the end of wave 2. In this way you can project a target for wave 4.

Keep in mind that normally the base line from wave 2 will be broken slightly by the price action of wave 4. The base line serves as a minimum target for wave 4. If wave 4 doesnt come near the base line at all, this is a sign of a very strong trend. You are probably still in wave 3 or you should get ready for a blow off in wave 5.

Targets for wave 5
Method 1
As soon as wave 4 is finished you can draw a channel connecting the end of wave 2 and wave 4 with a trend line by drawing a parallel line from the end of wave 3. In this way you can project a target for wave 5.

In most cases wave 5 will fail to reach the upper trend line, except when you are dealing with an extension in wave 5 or when wave 3 has been relatively weak. In an extension, which is also indicated by high volume and momentum indicators, a throw over can occur.

Method 2
Mostly wave 3 is the strongest wave showing a very fast acceleration relative to waves 1 and 5. If wave 3 indeed shows a nearly vertical rise or decline, then draw a trend line connecting wave 2 and 4 and draw a parallel line from wave 1(!). This parallel line will cut through wave 3 and will target wave 5.

Experience shows this to be a very valuable channel.

Targets for wave D and E (Contracting Triangles)

As soon as wave B is finished you can draw a trend line connecting the origin of wave A and the end of wave B to get a target for wave D, provided a triangle indeed is developing. This is more certain after completion of wave C.

As soon as wave C is finished you can draw a trend line connecting wave A and the end of wave C to get a target for wave E. Wave E almost never stops at the trend line precisely, it either never reaches the trend line or it overshoots the trend line fast and temporarily.

Modern Elliott Wave patterns

Modern patterns (following Modern Rules) is actually extra patterns that are mostly hybrid patterns derived from the known patterns that have existed from the beginning.

1-TRENDS
a. Impulse 2 Pattern

Rules:-
-Resembles a normal impulse
-Wave 4 is allowed to retrace between 51.5% and 62%, without penetrating the region of wave 1.
-As a guideline, wave 4 very often is a Zigzag.

2-Corrections
a. Zigzag Flat Pattern

It is a common pattern that is exactly the same as a Zigzag, except for the fact that the B wave is allowed to retrace more than 61.8% of wave A.
b. Running Zigzag Pattern

A failure in a corrective pattern happens when the C wave is shorter
than wave A and fails to go beyond the end of A. This mostly happens in Running Flats and or in Zigzags.
It indicates strength in the direction of the main trend.

c. Ascending and descending Triangles
-See Expanding Triangles patterns.

Studying the patterns is very important in order to apply the Elliott Wave Principle correctly. The pattern of the market action, if correctly determined, not only tells you to what price levels the market will rise or decline, but also in which way (or pattern) this will happen.

There are Classic Elliot Wave patterns(following Classic Rules) and Modern Elliot Wave patterns(following Modern rules).

For the part 1, we will be focusing on Classic Patterns.

Classic Elliot Wave patterns
1- Trends
a) Impulse pattern

Impulses are always composed of five waves, labeled 1,2,3,4,5. Waves 1, 3 and 5 are themselves each impulsive patterns and are approximately equal in length. Waves 2 and 4 on the contrary are always corrective patterns.

Rules:-
-Wave 2 cannot be longer in price than wave 1, and it must not go beyond the origin of wave 1.
-Wave 3 is never the shortest when compared to waves 1 and 5.
-Wave 4 cannot overlap wave 1, except in diagonal triangles and sometimes in wave 1 or A waves, but never in a third wave. In most cases there should not be an overlap
between wave 1 and A.
-As a guideline the third wave shows the greatest momentum, except when the fifth is the extended wave.
-Wave 5 must exceed the end of wave 3.
-As a guideline the internal wave structure should show alternation, which means different kind of corrective structures in wave 2 and 4.

b) Extension pattern

-Just like impulse wave, but wave 1,3 or 5 can be extended, becoming a much longer wave( consist of a few smaller waves in it).

c) Diagonal triangle type 1 Pattern

-Diagonals are relatively rare phenomena for large wave degrees, but they do occur often in lower wave degrees on intra-day charts.

Rules:-
It is composed of 5 waves.
Waves 4 and 1 do overlap.
Wave 4 cant go beyond the origin of wave 3.
Wave 3) cannot be the shortest wave.
Internally all waves of the diagonal have a corrective wave structure.
Wave 1 is the longest wave and wave 5 the shortest.
The channel lines of Diagonals must converge.
As a guideline the internal wave structure should show alternation, which means different kind of corrective structures.

d) Diagonal triangle type 2 Pattern

2- Corrections
a) ZigZag pattern

-A Zigzag is the most common corrective structure, which starts a sharp reversal.
-A zigzag can extend itself into a double or triple zigzag, although this is not very common.

Rules:-
It is composed of 3 waves.
Waves A and C are impulses, wave B is cor
The B wave retraces no more then 61.8% o
The C wave must go beyond the end of A.
The C wave normally is at least equal to A.

b) Flat pattern

-Flats are very common forms of corrective patterns, which generally show a sideways direction.

Rules:-

It is composed of 3 waves.
Wave C is an impulse, wave A and B are corrective.
Wave B retraces more then 61.8% of A.
Wave B often shows a complete retracement to the end of the previous impulse wave.
Wave C shouldnt go beyond the end of A.
Normally wave C is at least equal to A.

c) Contracting Triangle pattern

It is composed of 5 waves.
Wave 4 and 1 do overlap.
Wave 4 cant go beyond the origin of wave 3.
Wave 3 cannot be the shortest wave.
Internally all waves of the diagonal have a corrective wave structure.
In a contracting Triangle, wave 1 is the longest wave and wave 5 the shortest. In an expanding Triangle, wave 1 is the shortest and wave 5 the longest.
Triangles normally have a wedged shape, which follows from the previous.
As a guideline the internal wave structure should show alternation.

d) Expanding Triangle pattern

Basically you need to know 4 steps below :-
1-Basic Theory
2-Pattern
3-Channeling
4-Fibonacci ratios

Part 1 – Basic Theory
According to physical law: “Every action creates an equal and opposite reaction”. The same goes for the financial markets. A price movement up or down must be followed by a contrary movement, as the saying goes: “What goes up must come down”( and vice versa).

The wave is a movement in the market, either up or down. The size of the wave depends
upon the period of time that is being analyzed.Basically, market cycles are composed of two major types of Waves, “Impulse Wave” and “Corrective Wave“.

Trends show the main direction of prices, while corrections move against the trend.

A. The Impulse Wave:

It is a wave that moves in the direction of the main trend of the market. Every impulse wave can be sub-divided into a 5 – wave structure (1-2-3-4-5).

The Impulse wave formation has five distinct price movements, three in the direction of the trend (1, 3, and 5) and two against the trend (Corrections – 2 and 4).

Wave 2 and 4 in the above picture are corrections.

An impulse wave formation followed by a corrective wave, form an Elliott wave degree, consisting of trend and counter trend. Although the patterns pictured above are bullish, the same applies for bear markets, where the main trend is down.

B. The Corrective Wave:

It is a wave that moves counter to the direction of the main trend of the market. Every corrective wave can be sub-divided into a 3 – wave structure (a-b-c).
An important feature of the principle is that it is “Fractal” in nature. “Fractal” means market structure is built from similar patterns on a larger or smaller scales. Therefore, we can count the wave on a long-term yearly market chart as well as short-term hourly market chart.

The corrective wave formation normally has 3-wave, in some cases five or more distinct price movements, two in the direction of the main correction ( A and C) and one against it (B).

Part 2, we will be discussing on a “Pattern” in elliot wave technique.