If you attempt to use any of the information provided, please accept the risks involved. Elliott applied his thoughts and created a masterpiece, resulting in his incredible and accurate predictions of the Stock Market Crash. Three of these swings, which are 1, 3 and 5, affect the overall direction in favor of the Dominant Trend.
Within the series of five waves, the three waves that unfold in favor of the dominant trend are separated by two counter-trend breaks, which are referred to as 2 and 4. These fluctuations represent a temporary interruption of the impulse waves, which is why they are called Corrective waves. The Market moves 5 Waves towards the Main Trend with 3 Waves against it.
Typically, Impulse 3 contains an extension, which would imply that Impulse 5 is the same length as Impulse 1. This is because differences occur at the end of the 5th Wave, giving Traders the opportunity to make up the difference in the price action. When the market goes into a correction, the correction itself would often end the initial swings within the price area of the previous wave 4, to a lesser extent.
This applies exclusively to wave 4, which would end in the territory of the previous wave 4, within the main impulse 3.
ADVANCED MODULE
WAVE CHARACTERISTICS
If it does, then under no circumstances can it be rolled back beyond the start of Wave 1. If that happens, it would invalidate the wave count and one of the main rules. Although Wave 1 started a new cycle, the previous trend is still considered strong and the starting point of wave 1, which is the low or high of the previous trend, would be aggressively retested.
The Fibonacci extension tool is specifically used to determine the TP target at the predicted end of wave 3 by measuring wave 1 with its return wave 2. This is the most traded wave and is known for its clean appearance and strength. candles. Elliotticians usually want to trade the 3 of 3, which is the 3rd sub-wave within the 3rd main wave.
Sometimes the retracement extends to the 50% Fibonacci Retracements of Wave 3, depending of course on the Retracement. A very important fact to keep in mind is that Wave 4 does not enter the price area of Wave 1. At this point, the trend is clearly established and Wave 4 represents the point at which traders can close the trade at the end of Wave 3.
Volume is lower in the 3rd wave, indicating that the prevailing trend is showing a continuation of Price Action, but with a lack of strength. In other words, the trend is still continuing, but the dominant side is not injecting. Wave A represents the beginning of the reversal arms of the ABC trend and the divergence effect.
It is typically more difficult to identify and its movements are mostly unclear, due to the fact that fundamentals are still somewhat in favor of the previous dominant trend. Usually it reaches the vibrational levels of Wave 4 and the most it can run is after the beginning of Wave 5. However, price action can quickly move within this Wave, showing a stronger pullback, even exceeding the beginning of Wave A.
ABC CORRECTIVE TREND
This wave starts and determines the corrective structure, therefore it can unfold with a 3 or 5 swing sequence. This wave always unfolds with a 3 swing sequence and under no circumstances should it be marked with 5 swings, ever. Wave C is known to have consistent volumes on its side, removing market doubts about the actual trend and showing power in its swings.
It is known for the impulsive look, and it is also the most traded wave from the entire ABC Corrective Structure. Please note that Waves A & C tend to develop in the same time and length, especially in Zig-Zag structures. Image indicating the complete market cycle including Motive Waves (known as impulse waves) and Corrective Waves (known as zig-zag waves).
Price action swings are fractal in nature and using Elliott Wave relies heavily on charting and technical analysis. This means that regardless of how large or small the wave degree is, impulse waves take on a 5-wave sequence and corrective waves a 3-wave sequence. Impulse waves are subdivided into 5 smaller waves and corrective waves are subdivided into 3 smaller waves.
This means that the application of the Wave Principle is a form of pattern recognition.
FRACTAL PATTERN
The degree of a wave is determined not only by its size and position, but also by its shape. Because of the fractal pattern, cycle waves are divided into primary waves, which then divide into intermediate waves, and so on.
WAVES DEGREES & LABELING
The patterns work hand in hand with the Fibonacci sequence and in the whole cycle of 8 waves (A-B-C) we can find 89 waves in impulsive patterns and 55 waves in corrective patterns.
FIBONACCI RELATIONSHIP
The Fibonacci sequence can be found in the Waves as they unfold and somehow the market and trader psychology seem to be programmed by mathematics. This is why some automated trading systems (EAs) are programmed to follow the Fibonacci sequence.
FIBONACCI SEQUENCE VS WAVE NUMBERS
MOTIVE WAVES
An Impulse is the most common Wave Motive in which Wave 4 never overlaps with Wave 1 or enters its territory. In an impulse, one of the motif's sub-waves (1, 3 or 5) would almost always present an extension, and the Sequence is always without exception.
IMPULSE
EXTENSION
Demonstrates how an impulse can present extensions within the sub-waves, at different stages of the impulse phase. Traders tend to form the habit of noticing the expansion in its early stages of development. A good way to spot an expansion would be when Wave 3 has proven unacceptable.
For example, when wave 3 is shorter than wave 1, or when a reversal wave (4th wave) enters the territory of wave 1, then it should be relabeled as the 1st subwave in the extension itself. After excessive extension, a phenomenon called "clipping" may occur in (and only in) the last 5th wave. Elliott called it a “flop,” but traders in modern technical analysis call it a “truncation” or a “cut fifth.”
Such truncation cannot be accurately seen in advance and can only be validated by the presumption that Wave 5 contains the Impulse structure.
TRUNCATION
The diagonal does not present an extension, therefore it is not an Impulse, but a special Motive Wave.
DIAGONAL
ENDING DIAGONAL
MOTIVE - ENDING EXPANDING DIAGONAL
The Front Diagonal is also a reversal pattern, offering 5 overlapping and contracting Impulses, within a wedge shape converging lines. A leading diagonal is usually a sign of a deep retracement and it can be found in a Wave 1 position or in a Wave A within an A-B-C correction. Located in the 1st wave position of an impulse or in an A wave within an A-B-C correction.
Leading Diagonal