Wave criteria reference

Every student at FlowStream Market Course receives a printed version of this reference. The rules below are the minimum standard for a wave count to be considered valid in our workshops and coaching sessions. When price action violates any criterion, the count must be revised or abandoned.

Impulse wave rules (waves 1–5)

1. Wave 2 never retraces beyond the start of wave 1. If price moves below the origin of wave 1, your impulse count is invalid and you are likely in a larger corrective structure.
2. Wave 3 is never the shortest among waves 1, 3, and 5. It is often the longest, but the critical rule is that it cannot be shorter than both wave 1 and wave 5.
3. Wave 4 does not overlap wave 1 territory in a standard impulse (the overlap rule is relaxed only for diagonal patterns, which must be identified separately).
4. Wave 3 must show clear momentum — volume expansion, strong candle bodies, or breadth confirmation on index charts. A sluggish wave 3 suggests a mislabeled correction.
5. Wave 5 may truncate or extend but must complete five sub-waves if you are labeling a lower-degree impulse within it. Do not force a fifth wave without subdivision evidence.

Corrective wave rules (A–B–C)

1. Wave B never retraces beyond the start of wave A in a zigzag correction. A deeper retracement suggests a flat or triangle structure instead.
2. Wave C must exceed the end of wave A in a standard zigzag. Failure to do so indicates an incomplete correction or a different pattern type.
3. Flat corrections require wave B to retrace at least 90% of wave A. Labeling a flat without this depth is a common error among new students.
4. Triangles must show converging trend lines with five sub-waves (A-B-C-D-E). If the pattern does not converge, consider a wedge or channel instead.
5. Corrections are never five-wave structures at the same degree as the impulse they correct. If you count five waves in a pullback, drop to a lower degree or reconsider the larger trend label.

Fibonacci relationships to verify

While not strict rules, these relationships support or challenge your count. Document which levels you used when entering a trade.

• Wave 2 commonly retraces 50%–61.8% of wave 1
• Wave 3 often reaches 161.8% of wave 1
• Wave 4 frequently retraces 38.2% of wave 3
• Wave C in a zigzag often equals wave A in length (1.0 ratio) or extends to 161.8%

When to abandon a count

Pattern discipline means accepting invalidation promptly. Abandon your current count when:

• Any of the three impulse rules are violated
• Your stated invalidation level is breached
• You have relabeled the same structure more than twice without new information
• The count requires an unlabeled diagonal or triangle to "make it work"