Training Video_21

 

Elliott Impulse Waves

 

With this video we continue Elliott waves, looking at the rules and application of impulse waves.

This is the second video about Elliott waves.

 

 

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Hallo, Sylvain Vervoort with technical analysis part 21. With this video we continue Elliott waves, looking at the rules and application of impulse waves. Pay a visit to my website at stocata dot org and buy my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system.

Recognizing wave patterns is the most important occupation within Elliot wave analysis. An impulse wave is always composed of 5 waves, numbered 1 to 5. Waves 1, 3, and 5 are, again, impulse patterns. Waves 2 and 4 are correction patterns.

• Wave 1 is an impulse wave or a starting wedge impulse wave (we will talk about later on)
• Wave 2 cannot move beyond the start of wave 1.
• Wave 3 is an impulse wave.
• Wave 3 is never the smallest wave.
• Wave 4 can be any type of correction pattern.
• Waves 2 and 4 are not overlapping.
• Wave 5 is an impulse wave or an ending wedge impulse wave.
  
  

A correct count is of course utmost important. The figure at the left shows a faulty count with wave 4 and 2 overlapping. The figure at the middle shows a wrong count because wave 3 can never be the smallest wave. This is corrected in the figure at the right, starting an extension of wave 3 with an impulse wave of a lower degree.

Look at this example, a very nice upward impulse wave on a daily chart. Of course not all impulse waves look this perfect!

 

And here you can see a very nice downward impulse wave on a daily chart. Again note that not all impulse waves will look this perfect!

Waves 1, 3, and 5 can be extended and therefore take much more time than the other waves to complete. A wave extension is very common for all waves; in most cases, this happens with wave 3. Waves 1 and than 5 incline toward equality.

Here an example of an upward impulse wave on a daily chart with an extension impulse wave of a lower degree in wave 3.

Many times, price targets are given by Fibonacci projections. Note here how a Fibonacci price projection based on the height of wave 1 is reaching the targets at 161.8%, 261.8% and 423.6% to complete finally wave 5. We will talk about Fibonacci projections in future videos.

The starting wedge impulse wave can only appear in waves 1 or a correction wave A. There may be, at first, some confusion when wave 3, within the starting wedge impulse wave, is seen as an extension wave. You must recognize the starting wedge impulse wave at the start of wave 5 by drawing the wedge pattern between 1 and 3 and 2 and 4. You know now that the starting wedge impulse wave 5 is really just the top of a new wave 1 of a higher order. The wave that follows is not an extended impulse wave 3 up, but a correction wave 2 down.

• This pattern has 5 waves.
• The price is moving between 2 converging lines, a wedge pattern.
• Wave 1 is an impulse wave or a lower order starting wedge impulse wave.
• Wave 2 is a correction pattern smaller than wave 1.
• Wave 3 is an impulse pattern.
• Wave 3 is never the smallest wave.
• Wave 4 can be any correction pattern.
• Waves 4 and 2 may be overlapping.
• Wave 5 is an impulse pattern or an ending wedge impulse wave

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Example of a starting wedge impulse wave where you will see the blue waves 1 and 2 as the start of a new impulse wave up. With the red 1 and 2 waves it looks like the blue wave is starting an extension for blue wave 3. However once the green wave 4 is confirmed, you can draw a wedge formation through the tops and bottoms. Now you can decide that you most probably are making the green indicated starting wedge impulse wave and you are expecting starting wedge wave top 5, completing the black higher order wave 1 and next the higher order black correction wave 2 and not a continuation of the blue wave uptrend as you might think if you do not recognize the starting wedge impulse wave.

Ending wedge impulse waves are mostly found in higher order impulse waves. Because the ending wedge impulse wave is a wave 5 impulse wave or a wave C correction wave, there will be a bigger market reversal on wave completion. At first, there may be some confusion when waves 3 and 4, within the ending wedge impulse wave, are seen as the start of extension waves 1 and 2. It is important to recognize the ending wedge impulse wave at the start of wave 5 by drawing the wedge pattern. You know now that the ending wedge impulse wave 5 is really the end of wave 5 of a higher order wave. The wave that follows is not an extended impulse wave 3, but a bigger correction wave. The ending wedge impulse wave can be easily recognized by the internal 3-wave-structure for all waves.

• The price is moving between two converging lines, a wedge pattern.
• Waves 1, 3, and 5 are 3-wave zigzag patterns.
• Wave 2 is a correction pattern.
• Wave 3 is always bigger than wave 2.
• Wave 3 is never the smallest wave.
• Wave 4 can be any correction pattern.
• Waves 4 and 2 may be partly overlapping.

Example of an ending wedge impulse wave where you will see the blue waves 1 and 2 as the start of a new impulse wave up after a long term black correction wave 4. With the red 1 and 2 waves it looks like the blue wave is starting an extension for blue wave 3. However once the red wave 5 is started, you can draw a wedge formation through the tops and bottoms. Now you can decide that you most probably are making the green indicated ending wedge impulse wave, confirmed by the 3-wave zigzag patterns and you are expecting ending wedge wave top 5 with the higher order black top wave 5, followed by a big correction and not a continuation of the blue wave uptrend.

This is the end of the Elliott impulse waves part. Next video we will look at the correction waves. Tell your friends about these videos and while visiting my website you should order my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system. See you in my next video!

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