Model example · made-up numbers
How the Elliott rule works
Model stock · made-up numbers- Buy zone Elliott buy zoneBuy zone based on Elliott wave rules: the area the price has to pull back into after a rise (wave 1) before the rule checks an entry. It lies between 61.8% and 78.6% of the rise, measured from the high. Not advice from us, but a help for your own review.Example: Rise from 100 to 120 → buy zone 104.28–107.64.More in the Academy: Lesson buy zone and Fibonacci
- 110.70–119.10
- only after a close above the swing high
- Stop Stop (stop-loss)The price at which a position is closed to limit the loss. Here it lies below the start of wave 1, with a buffer of half an ATR.Example: Start of wave 1 at 100, ATR 2 → stop at 99.More in the Academy: Lesson stop and risk
- 98.00
- exit at a loss
- Target 1 (TP1) Target 1 and Target 2 (TP1, TP2)The targets (take profit, TP) are at 161.8% (TP1) and 685.4% (TP2) of the length of wave 1, measured from the end of wave 2. At TP1 the rule plans a partial exit (a quarter); the rest runs to TP2, to its trailing stop or to the time exit.Example: Low 100, high 120, wave 2 ends at 105 → TP1 137.36, TP2 242.08.More in the Academy: Lesson trade management
- 194.90
- partial exit (a quarter)
- Target 2 (TP2)
- 456.70
- exit (rest)
Why?
After the rise from 100.00 to 150.00 the price pulled back into the buy zone 110.70–119.10, then formed a swing high and closed above it on Day 34.
Step 1 of 3
- Find the trend A strong rise – wave 1 Waves 1, 2 and 3In Elliott’s idea an uptrend moves in waves: wave 1 is a strong rise, wave 2 a pullback, wave 3 the next rise. The rule tries to enter at the end of wave 2 – nobody knows in advance whether wave 3 comes.Example: Wave 1: 100 → 120, wave 2: back to 105, then wave 3 would be next.More in the Academy: Lesson Elliott waves from point 0 to 1. We show the weekly chart Weekly chart (weekly context)The rule also counts the waves on weekly candles. Verdict: supportive if the main scenario expects rising prices and the alternative does too – or is invalidated before the stop is reached (level at or above the stop; the reading is still being checked). This is for information only.Example: Main scenario wave 3 up, alternative also up → the weekly chart is supportive.More in the Academy: Lesson Elliott waves for information only – it is not a criterion of the rule (since Oct 10, 2026).
- Wait for the buy zone In wave 2 the price pulls back into the buy zone Elliott buy zoneBuy zone based on Elliott wave rules: the area the price has to pull back into after a rise (wave 1) before the rule checks an entry. It lies between 61.8% and 78.6% of the rise, measured from the high. Not advice from us, but a help for your own review.Example: Rise from 100 to 120 → buy zone 104.28–107.64.More in the Academy: Lesson buy zone and Fibonacci (61.8–78.6% of the rise, here 110.70–119.10). The rule is only triggered by a candle close above the last swing high Swing high (the rule’s trigger)The last minor high after the price touched the buy zone – confirmed once the price then pulls back by 1 ATR. A daily close above it is the rule’s trigger; its entry would be at the next open.Example: Zone touched, recovery to 108.50, pullback to 106.80 (ATR 1.50) → swing high 108.50; close 108.90 → the rule’s trigger is met.More in the Academy: Lesson buy zone and Fibonacci; if the price closes below the start of wave 1, the setup is void.
- Know the stop and targets Before the entry, the stop Stop (stop-loss)The price at which a position is closed to limit the loss. Here it lies below the start of wave 1, with a buffer of half an ATR.Example: Start of wave 1 at 100, ATR 2 → stop at 99.More in the Academy: Lesson stop and risk (98.00), Target 1 and Target 2 Target 1 and Target 2 (TP1, TP2)The targets (take profit, TP) are at 161.8% (TP1) and 685.4% (TP2) of the length of wave 1, measured from the end of wave 2. At TP1 the rule plans a partial exit (a quarter); the rest runs to TP2, to its trailing stop or to the time exit.Example: Low 100, high 120, wave 2 ends at 105 → TP1 137.36, TP2 242.08.More in the Academy: Lesson trade management (TP1 194.90, TP2 456.70) are fixed. At Target 1 the rule plans a partial exit (a quarter), then it protects the rest (breakeven, later the wave 1 high). The green line shows how it could continue under our Fibonacci rules: wave 3 runs as an extended wave well beyond Target 1, and after the pullback in wave 4 a shorter wave 5 follows.
Schematic of the analysis – not a price chart. Not investment advice. · How it works