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Elliot Waves Complete Guide | Chapter 4.2 - "Channeling"

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Hello Traders. Welcome to Chapter 4.2, where we will be learning about channeling in Elliott Waves (also known as, parallel channels) - something that many of you are probably already doing in your daily technical analysis, but probably have not known that it could be used within the Elliott Wave theory. This method is going to give us an extra edge when it comes to pinpointing the end of certain waves in certain patterns, basically a way to predict the future in some ways by reducing some of the probabilities of unknown trajectory of waves.

📚 Chapter 4 Glossary:

4.1 Alternation
📖 4.2 Channeling
4.3 Psychology
4.4 Fib-Ratio
4.5 Motive Wave Multiples
4.6 Corrective Wave Multiples

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What is Channeling, or Parallel Channels?

One of the major guidelines or rules within in the Elliot Wave theory is that two of the impulse waves (please refer to chapter 1) in a five-wave basic structure will tend to be equal. This is true in a normal five-wave basic structure or in a basic structure where we have one extended wave. In even more simpler terms, we almost always will have two impulse waves that will be similar in length. When we have the relationship between two waves inside the parallel structure, the ends of these waves can be calculated in points or percentages of extensions like the 127.2%, 161.8% (the golden fib zone! - more on the fibs in the next chapter). Most of the time these two waves will be equal in length, and if one wave was 100 points longer, then there is a very high probability that another wave will be 100 ticks long (also known as a measured move). And of course you already know that if the first wave is 90 points and the second wave is 100 points, there’s a high probability that the fifth wave will be an extended wave, and etc. Again, if you are lost, I highly recommend you go back to reading chapters 1 and 2.

So since we have an arithmetic relationship (or equality) within the structure in terms of line connections, the upper and lower boundaries of the impulse waves can be marked by two major trendlines. EW Traders will often draw a temporary channel when enough data is given, and what we have here is actually a temporary channel in the chart above. This is not a fancy term - this merely means you are drawing the channel ahead of time since you have a rough idea of the 3rd wave already being drawn out. You then can visually predict by connecting two or three of the major points to create a channel to help you assume where the next possible wave will end by simple support. You can see that the next wave will be a down move and then we have to complete the 4th wave. We don’t know if we are in a five-wave basic structure just yet, but the channel will help us validate this idea.

Furthermore, since the two waves inside of the structure tend to be equal and the longest wave here is the third wave, you can see that we can have a predicted fourth wave that will bounce at the channel support due to the 'temporary' channel support line we created as we can see in the chart, and the fifth wave will be equal in length of the wave 1, and will end up most likely at the channels resistance in the upper boundary.

What makes a parallel channel invalidated? Well, that's easy - if price breaks the channel prematurely, and continues to fall, this will invalidate our count and the idea of channeling. If the fourth wave doesn’t end at a point touching the lower boundary of the support line channel, you must reconstruct it by connecting the ends of wave 2 and 4, to correctly estimate the end of wave 5. Then draw a parallel line for the upward boundary from the end of wave 3.

Parallel channels help INCREASE your probability of wave counts, and also have a good direction of where simply support may be!

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Elliot Waves Complete Guide | Chapter 1 - "The Overall Cycle"