Elliott noted that parallel trend channels typically mark the upper and lower boundaries of impulse waves, often with dramatic precision. Analysts should draw them in advance to assist in determining wave targets and to provide clues to the future development of trends.

To draw a proper channel, 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 5 when drawn touching the peak of wave three, as in Figure 1.

Key Takeaway: Can you count a completed five waves and prices just hit a channel? Pay attention!

For a complete description, please read Elliott Wave Principle: Key to Market Behavior by Robert Prechter and A.J. Frost.