A 1-2/1-2 structure is an indication that the larger degree impulse wave in development is extending. All extended waves are going to have a 1-2/1-2 structure. Typically, you will find them in wave 3's, but they certainly can develop in waves 1 and 5.
The 2nd Wave 1 almost always exceeds the first wave 1.
The 2nd Wave 2 almost never moves beyond the first wave 2 pivot.
The 2nd Wave 1-2 structure most often does not exhibit alternation. You might end up with two wave 2 zigzags, or 2 flats. This can be a tip-off that you are not looking at wave 4, but rather a second 2nd wave.
The second 2nd wave is typically not as steep as the first 2nd wave.
Structure
The 1-2/1-2 structure is not difficult to identify, even in real time. A typical impulse wave normally forms with a wave 1 of some indeterminate distance, and a wave 2 retracement typically of 50% to 61.8% of the wave 1 movement.
Then, wave 3 will take off in a very impulsive manner, creating quite a distance between the wave 1 pivot and where the wave 3 pivots. With a 1-2/1-2 structure, price most often moves back into the territory of the previous wave 1-2 range. Doesn't have to, but it does need to be close.
The 2nd wave 1-2 structure needs to be similar in proportions to that of the first 1-2 structure, not taking much more, if any more, time than the first. Remember, you are actually
seeing the development of a smaller degree impulse wave, so expect it to be a bit smaller than the larger degree structure.
There are two types of 1-2/1-2 combinations.
The short advance 1-2/1-2:
The short advance 1-2/1-2 occurs when the wave 1 pivot is overcome in what you think is to be wave 3, but price stops shortly after surpassing the wave 1 pivot and returns back into the range of waves 1-2. Wave 3 is supposed to fly. When you find yourself frustrated because the price isn't moving as expected, that is the point you should suspect another 1-2 is in the works.
The deep retracement 1-2/1-2
There are times when wave 3 develops normally and you have at least a 1.618 extension beyond wave 1. Wave 3 looks good, but price then proceeds to pull back into the range of waves 1-2.
You might be tempted to call the structure wave 4 and label the wave as diagonal, but if you can clearly identify 5 waves, rather than 3, in wave 1 you are more likely looking at a 1-2/1-2.
Guidelines to exclude a 1-2 1-2 count
The second Wave 1 MUST have overlapped the first Wave 1 or it should be treated as a B wave in an ongoing wave 2 correction. Potentially it is an internal wave 1-2, but not the start of an extension.
To clarify, an extension suggests a massive elongation of the impulse pattern. All impulse waves 1,3, and 5 have internal 5 wave structures as well. The fact that you can see the internal 1-2 at times does not mean the larger wave will extend.
When the second wave 1 does not exceed the first, the probabilities are that the wave is not going to extend.
Not every double pair of pivots is a 1-2/1-2, however. Here are some important considerations to keep you on track. The 2nd wave 1 must advance beyond the pivot of the previous wave 1.
The Second Wave 2 should not overlap the trend line from the first wave 2
The 2nd wave 2 pivot must not move beyond the previous wave 2 pivot. It either of these is not true, then you are likely still seeing the first wave 2 developing or a B wave triangle working in the 1st Wave 2.
Prediction
The fact that wave 3 most normally extends, and in order to have that extension you must have a second 1-2 structure (not necessarily visible on the same time frame), it gives you an opportunity to enter the trade at the 2nd 1-2. That is, once the price has passed the first wave 1 pivot you can look to enter the trade at the 2nd wave 2 pivot.
The more 1-2/1-2 waves you have the more choppy "unwinding" will need to be done in the form of multiple wave 4s and 5s as final waves to close up the 1-2/1-2 structures.
As the chart below shows, beginning in February of 2016, the DJI Index began a strong impulse wave higher. We noted 3 sets of concurrent 1-2 waves leading into the circle IV correction (bright green), with a great deal of complexity still to come in the remaining waves.
CONTENT OF ELLIOTT WAVE CHEAT SHEETS
1 Home Rules and Guidelines Applicable to All Motive and Corrective Waves
2 Wave 1 Characteristics and Structure
3 Wave 2 Characteristics and Structure
4 Wave 3 Characteristics and Structure
5 Wave 4 Characteristics and Structure
6 Wave 5 Characteristics and Structure
7 Wave A Characteristics and Structure
8 Wave B Characteristics and Structure
9 Wave C Characteristics and Structure
10 Extensions Structure and Trading
11 Fibonacci Targets Price Targets for Retracement and Extension
12 1-2/1-2 Structures Wave 1-2 /1-2 Characteristics
13 Zigzags Structure and characteristics
14 Flats This is All FLAT Rules
15 Triangles Triangles (3-3-3-3-3) Description and samples
16 Complex Corrections Characteristics of Complex Corrections (Combinations)
17 Declaring X Waves When to declare an X wave and a complex correction
18 Ending Diagonals Description and samples.
19 Leading Diagonals Description and samples. This is quite rare.
21 Channeling How to Use Channels to Identify Waves
22 Correction Times Use the appropriate time frame to analyze the correction.