Beyond technical characteristics, Elliott Wave analysts also study the personality of each individual wave, as it reflects the psychology and market sentiment behind price movements. In the chart below, you can see an example of a rising trend represented by a 5-wave impulsive structure.
- Wave 1 is rarely obvious at its inception . Traders believe previous trend is still strongly in force and it’s usually considered as correction. Volume might increase a bit as move progressing, but not by enough to alert many technical analysts. Occasionally it could take structure of leading diagonal.
- Wave 2 corrects wave one and it could never extend beyond the start point of wave 1. In most cases it do not retrace more than 61.8 % or 76.4% of wave 1. It usually takes form of Zig Zag, Flat or Double Three and it could never be a Triangle. Volume should be lower during Wave 2 than during wave 1.
- Wave 3 is usually the largest and most powerful wave in a trend. Price is progressing quickly, corrections are short –lived and shallow. By wave 3 midpoint the crowd will often join the new trend. Wave 3 must exceed at leas 1.618 fib extension of wave 1 and could go up to 2.618 fib ext or more. Wave 3 cannot be the shortest one.
- Wave 4 is typically clearly corrective. Price could do sideways for an extended period and typically retraces less than 38.2 %, usually 23.6% of wave 3. Fourth waves are often frustrating because of their lack of progress in the larger trend. Wave 4 does not overlap with the price territory of wave 1, except in the case of a diagonal. It often takes structure of flat, triangle or irregular correction. At Elliottwave-Forecast.com, we don’t label a wave 4 if it passes 50% Fibonacci retracement of wave 3 (unless a diagonal)
- Wave 5 is the final leg in the direction of the dominant trend. The news is almost universally positive and everyone is bullish. Unfortunately, this is when many average investors finally buy in, right before the top. Volume is lower in wave five than in wave three, and many momentum indicators start to show divergences. It often takes form of ending diagonal structure.
Join us today !
Elevate your trading with Elliott Wave Forecast!
Ask unlimited questions during trading hours (Monday to Friday). Our Chat Rooms are an excellent place to learn, with continuous support from our market experts!
Explore our expert insights and real-time analysis covering Forex, Indices, Commodities, Cryptocurrencies, Stocks, and ETFs across 78 instruments.
Gain exclusive access to our Official Trading Recommendations in the Live Trading Room, where seasoned experts provide valuable insights and guidance on new trading opportunities.
For just $0.99, unlock a wealth of knowledge and experience with our 14-day Trial. Experience firsthand our proven trading strategy, which accurately defines Entry, Stop Loss, and Take Profit levels, empowering you to make informed decisions with confidence.
Ready to take the next step? Get your 14-day Trial in just a few clicks!
