Elliott Waves - Impulse Waves
00:20 - UTILITY
Impulse Waves have a 5-Wave internal structure.
Waves 1, 3 and 5 have an Internal subwave structure.
Waves 1, 3 and 5 upwards on a 1-Day time frame would have 3 upwards Waves on a 4h time frame.
Similarly, Waves 1, 3 and 5 upwards on a 4-Hour time frame would have 3 upwards Waves on a 1h time frame.
In effect, price is always a fractal of what is happening on a smaller scale.
01:34 - IMPLEMENTATION
Start on the highest time frame, generally the 1-month chart, and work your way down.
Use Log Scale for charts with 1+ years of data and/or extreme volatility.
Mark out each major High and Low formed on the way upward in the trend.
From these major Highs and Lows we are looking for 5 major pivots.
Sometimes to find them we may have to drop down by one time frame. In this example, from the Monthly to the Weekly chart.
Important to note: adjacent Waves should be of the same price degree, while the smaller of the two Waves should not be less than one third of the larger Wave.
If a Wave is smaller than one third of its adjacent Waves, it would be considered a smaller degree pattern than the larger Waves.
03:10 - EXAMPLE 1
As we learn, if a Wave is smaller than one third of its adjacent Wave, that Wave actually belongs to a smaller degree.
The first count shown is incorrect. The Wave 4 is less than one third of the length of Wave 3 in time and price. Thus, it would not be classified as a Wave 4 on this count and would be seen as a smaller degree pullback.
We are shown the correct count and what likely could be happening is that this price action is all part of a Wave 3 extension.
04:49 - EXAMPLE 2
The count we are shown first is once again invalid.
The reason is because adjacent Waves 2 and 3 are not within one third of each other in time or price.
This means they are not the same degree. The count must be changed to be valid.
Next we are shown a count that is valid.
A valid Impulse Wave count has all of the 5 Waves taking similar times and percentage moves.
05:59 - IMPLEMENTATION CONTINUED
Important rule 1: Wave 2 can never retrace all of the length of Wave 1.
Important rule 2: Wave 3 must be longer than Wave 2.
Important rule 3: Wave 3 can never be the shortest Wave from Waves 1, 3 and 5.
Important rule 4: Wave 4 can never retrace all of the length of Wave 3.
Important rule 5: Wave 5 has to be greater than 38.2% of Wave 4.
Wave 3 does not have to be the longest, but it cannot be the shortest.
Generally, Wave 5 is longer than Wave 4, but when it is shorter than it is classified as a 5th Wave Failure.
*If one of the above rules is not met, then you are 100% looking at a Corrective Wave structure.
07:51 - EXAMPLE 3
We are shown an example where we can visualize Important rule 5 from above.
The rule states that Wave 5 must be longer than 38.2% of Wave 4, otherwise it cannot be considered a valid Wave 5 (and is likely a Wave 4 still ongoing).
If Wave 5 falls below the 38.2% Fibonacci retracement, it is not a valid Wave 5.
If Wave 5 finishes above the 38.2% Fibonacci level, it is considered valid and is called a “5th Wave Failure” as it does not end above Wave 3.
The last count shown is a standard, valid, 5-Wave Impulse Wave count.
09:56 - TIPS & TRICKS
Make sure Log Scale is turned on for charts with 1+ years of data and/or extreme volatility.
Start on the 1-Month chart and work your way through lower time frames, such as the Weekly, the Daily, so on and so forth.
Sometimes, what appears to be the start of a 3 Wave Impulse can turn into a 3 Wave corrective Zig Zag.