It should be stated from the beginning that the principle of alternation is not a rule, is not mandatory, but price has the tendency to respect it, and so traders should take into consideration the alternation rule.
The principle of alternation is referring to alternation between the second and the fourth wave and it is worth to be mentioned that the principle holds true for more than 90% of the time when the alternation happens between the second and the fourth wave. So, with such a high degree of success, it is something to be aware of.
The alternation as stated by Elliott, requires alternating of simple and complex correction patterns in the second and the fourth waves. That means, that if in the second wave you have a correction like a zig-zag, double zig-zag, etc, in the fourth wave you should look for a complex form of correction, like a flat, triangle, double or triple combinations, etc.
When looking at alternation between the second and the fourth waves, one should take into consideration the following:
- price – that means the distance covered by the second and the fourth waves;
- time – that means the time taken for the corrections in the second and the fourth wave to take place;
- severity – the retracement levels the second and the fourth waves are reaching compared with the previous waves (wave one and wave three respectively);
- intricacy – that means the number of subdivisions present in each pattern;
- construction/structure – that means the patterns that are forming the second and the fourth waves should be different.
In conclusion, when waves of the same degree are compared, they should be distinctive and unique in as many ways as possible.
The recordings that come with this chapter will present many example about what to look for when trying to see if the principle of alternation is respected.