THE ELLIOTT WAVES THEORY (PART 2) - IMPULSIVE WAVES EXPLAINED

An impulsive wave is a five-wave structure. To distinguish between the two types of moves (impulsive and corrective), Elliott used numbers for impulsive waves and letters for corrective ones.

As such, traders that count waves using the Elliott principle, do that by labeling them either with numbers or with letters. Based on the above, an impulsive wave has five waves, all of them labeled with numbers.

The proper labeling, therefore, would be 1-2-3-4-5. However, there’s a catch.

Out of the five waves, two of them are corrective, and three impulsive. More exactly, waves 1, 3 and 5 show impulsive activity, while the 2nd and the 4th waves are corrective.  But then, to further respect the rules of a cycle with the Elliott Wave Theory, the 1st, 3rd, and 5th waves have a five-wave structure as well. Only that, of a lower degree.

The Rules of an Impulsive Wave

Elliott laid down a set of rules that make an impulsive wave. However, we covered on the video that comes with this article, only the basic ones.

Or, what is the minimum to check when looking to see the nature of a move? As such, in an impulsive wave:

• The 1st, 3rd and 5th waves are impulsive waves as well.
• At least one wave must extend. This is also called the “litmus” test. Extension refers to the longest wave in the structure. And, it refers only to the impulsive waves within the impulsive wave. Namely, to the 1st, the 3rd, and the 5th wave. For a wave to extend, it needs to be longer than 161.8% of the next longest one. However, that’s the minimum condition to be met. In strong impulsive waves, the extension may be well beyond that minimum level.
• The second wave is corrective. It can be either a simple or a complex correction. However, it can’t be a triangle.
• No parts of the 2nd wave can travel beyond the start of the 1st wave. This is a great rule for trading binary options. Imagine the market corrects into the 1st wave’s territory and then knowing it won’t move beyond the start of it. That’s a great place to buy some options.
• The 3rd wave cannot be the shortest. This is one of those rules that invalidate a count. If the 3rd wave is the shortest when compared with the 1st and the 5th, the overall structure isn’t impulsive, but corrective.
• The 4th wave can be any corrective pattern, triangle included.
• No overlapping should form between the two corrective waves in an impulsive move.

Tips and Tricks in Interpreting an Impulsive Move

Besides the rules listed above, here are some things that happen most of the times in an impulsive wave:

• The 3rd wave is the most likely one to extend.
• The 2nd wave rarely retraces more than 61.8% in the 1st wave’s territory. When it does that, it won’t be the end of it, but only the start of a so-called “running” correction.
• Another common way to extend is the 1st wave. The 5th wave rarely extends.
• Most of the times the 3rd wave is a third wave extension of a lower degree.
• Look for the 4th and the 2nd waves to differ in structure, construction and distance traveled.

As mentioned at the start of this series, these are only some of the things to look for when counting waves with the Elliott Theory. Check the video that comes with this article to see how to put these rules into practice and how to trade binary options using the logical process provided by the Elliott Waves Theory.