In yesterday's story about Soybean futures, we talked about the Three Rules of Elliott:
Rule #1: Wave 2 never corrects more than 100% of wave 1.
Rule #2: Wave 3 is never the shortest among waves 1 and 5.
Rule #3: Wave 4 never ends in the price territory of wave 1.
Yesterday, we looked at rule #3 as it applies to the current price action in Soybeans. That market may still hold a nice opportunity; more here.
Today, let's look at the second rule: "Wave 3 is never the shortest among waves 1 and 5." Jeffrey Kennedy, the editor of Elliott Wave International's Daily Futures Junctures, shows you how to apply this rule to the current picture in Cocoa futures in tonight's DFJ (March 11, online now).
There is one important nuance about this particular rule, though. Jeffrey writes:
"Wave three can never be the shortest impulse wave. Understand, though, that wave three doesn't have to be the longest impulse wave, it just can never be the shortest impulse wave."
Then, Jeffrey proceeds to show you this chart of Cocoa (some labels have been erased for this publication):
"I am labeling the advance from the January 22nd low as a five-wave move," writes Jeffrey in the March 11 DFJ. "And as you can see, within this move up, wave iii (circled) is shorter than wave i (circled)."
While this may seem like a rule violation, it's not. Note Jeffrey's "rule nuance" above: It's okay for wave 3 to be shorter than wave 1 – as long as it's not shorter than wave 1 and wave 5.
This is a crucial concept to understand. And in tonight's Daily Futures Junctures, Jeffrey Kennedy shows you how to apply it to spot real-life opportunities – in Cocoa futures, in this case. Get complete analysis on your screen in seconds – just look below for details on how to do it.