How to Use Elliott Wave Channels in Your Analysis

By Elliott Wave International

Elliott wave channeling can help you identify price targets and realize how future trends could develop.

A properly drawn channel typically marks the upper and lower boundaries of an impulse wave (a five-wave move in the direction of the trend). Elliott channels are most useful in identifying targets for wave four and five.

The initial channeling technique for an impulse requires at least three reference points. When wave three ends, connect the points labeled 1 and 3, then draw a parallel line touching the point labeled 2, as shown below.

This construction provides an estimated boundary for wave four. (In most cases, third waves travel far enough that the starting point is excluded from the final channel’s touch points.)

If the fourth wave ends at a point not touching the parallel, you must reconstruct the channel in order to estimate the boundary for wave five. First connect the ends of waves two and four. If waves one and three are normal, the upper parallel most accurately forecasts the end of wave five when drawn touching the peak of wave three, as in the chart below.

Pro tip: If wave three is abnormally strong, almost vertical, then a parallel drawn from its top may be too high. Experience has shown that a parallel to the baseline that touches the top of wave one is then more useful. In some cases, it may be useful to draw both potential upper boundary lines to alert you to be especially attentive to the wave count and volume characteristics at those levels and then take appropriate action as the wave count warrants.

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This article was syndicated by Elliott Wave International and was originally published under the headline How to Use Elliott Wave Channels in Your Analysis. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Third Waves Are the Ones You Want to Catch

By Elliott Wave International

"Third waves are wonders to behold. They are strong and broad.

They usually generate the greatest volume and price movement and are most often the extended wave in a series."

-- Elliott Wave Principle, Frost and Prechter, p. 78

Of the five waves in an Elliott impulse, the 3rd wave is the one you want to catch.

And you definitely don't want to be on the wrong side of one.

These idealized charts show you what I mean.

Every Elliott fan has a handful of favorite 3rd waves.

Mine? Bitcoin in 2020.

In April 2020 -- amid the COVID-19 panic -- Elliott Wave International's analysts told subscribers:

"Bitcoin (BTC) is in the very early stages of a wave (3) rally... keep the focus on higher."

Result: Bitcoin rocketed from 7,000 to nearly 65,000 in a year.

Not every 3rd wave is this dramatic, of course.

Bitcoin in 2020 is an important reminder that 3rd waves are most often the longest and strongest move in an Elliott impulse.

Want to learn more about the Elliott Principle? This handy reference guide teaches you the basics in 30 minutes (it's free).

This article was syndicated by Elliott Wave International and was originally published under the headline Third Waves Are the Ones You Want to Catch. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

That Can't Happen in the US -- Can It?

By Elliott Wave International

Imagine the common stocks of residential real estate developers D.R. Horton or Lennar Corp dropping 98%. What would that imply for US real estate? Back in 2022, Elliott Wave International's Global Market Perspective warned that China real estate developer Country Garden Holdings “is becoming a bellwether of contagion risk.” Here’s a June 2025 GMP update:

Country Garden shares hit a new all-time low of 38 cents a share this week, down 98% from its January 2018 peak:

The continued bearish potential is accentuated by calls for an imminent restoration of the Chinese housing boom. In recent weeks, for instance, The South China Morning Post finds a “more upbeat tone among property analysts.” When five repossessed homes recently sold at auction for multiples of the minimum bid, a Chinese news service called the “Sky-High Bids for Foreclosed Homes” a “Hint at a Real Estate Rebound.” One of the many bullish voices on China’s housing market holds that a “cocktail of conditions” will drive the “structural property market recovery.” The South China Morning Post attributes this “positive mood” to a “broader reassessment of China’s economy.” We rate this as too much optimism, too soon.

Are the Chinese and U.S. real estate markets linked? Learn about the Fear of Getting Out (FOGO) by subscribing to EWI's Global Market Perspective.

Not ready to subscribe? Get more samples of EWI's unique Global Markets analysis -- follow this link for FREE access.

This article was syndicated by Elliott Wave International and was originally published under the headline That Can't Happen Here -- Can It?. EWI is the world's largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.