Bulkowski's Wave Five Extension

It can get quite complicated trying to apply nine Wave degrees or even just using the labeling convention in the order provided.

Another drawback is the fact that if price action invalidates the retracement levels you would need to restart counting the waves again. 

Elliott wave theory also draws heavily on the concept of fractals.

Wave Degrees 

The labeling convention shown above is a hybrid between that shown in the Elliott Wave book and the Elliott tools from SharpCharts. In Elliott-speak, this labeling convention is used to identify the degree or level of the wave, which represents the size of the underlying trend. By extension, Wave I is one larger degree than Waves

The 3rd Wave Extension - Elliott Wave in a bull trend Using the Fibonacci extension tool, we can see that price action rallies to 1.

What you can observe from the chart example is that after price breaks wave one high, there is a brief retest of this high. Taking a long position at this level would have resulted in riding the third wave early. While there are cases when the third wave can extend to 1. Therefore, traders can always book profits at 1.

In the next example below from the GE chart, we can see that the same logic applies in a downtrend. The 3rd Wave extension - Elliott Wave in a downtrend Following the retracement of wave two, the break of the low of wave one triggers the start of the third wave.

Following a brief retest of the low of wave one, a quick retest of this level triggers short position. Traders can book the first profit at the The remainder of the position is left open with no risk and an aim to capture more profits. This will enable the trader to capture more profits as the trend momentum increases.

Using the wave degrees to identify the third wave Another method to trade the third wave is to first identify the third wave of a higher degree. Think of this as counting the waves on the daily or weekly time frame. When you identify the third wave, you can then look to the smaller time frames It is due to the fractal nature of Elliott waves that allows traders to look for the third wave of a lesser degree to form. In other words, you would look for the formation of this third wave on a smaller time frame.

One of the major drawbacks of using this method is that it requires the trader to look at multiple time frames. The multiple time frame approach is not suitable for most traders.

However, for day traders this could be a great way to trade with increased probability of success. Another drawback is the fact that if price action invalidates the retracement levels you would need to restart counting the waves again. The next chart below illustrates this method. The thicker line depicts the Elliott wave of the higher degree.

After the main 3rd wave extension forms, you can look at various turning points based on the Elliott waves of a lesser degree. The same approach will enable traders to pick good turning points within the wave count. Elliott Wave - Degree of waves Why trade the third wave in Elliott waves? It is a known fact that Elliott wave theory can get a bit overwhelming.

The counting of the trades can be quite a task. In most cases, a wrong count of the trade can leave the analysis invalid. Furthermore there is the fact that Elliott waves can become subjective in some cases. This could lead to incorrect analysis which can result in potentially devastating trade entries. To avoid all of this, traders can simply focus on the third wave of the Elliott wave theory. By starting with identifying the trend and trading the third wave, traders can enter this potentially powerful wave with ease.

The fact that this method allows for an early entry into the trade can give you the added advantage of booking more profits. The third wave of the Elliott wave method is compatible with other technical indicators. This can lead to further validation of the price action and can result in higher probability trades.

However, traders need to apply caution as using too many indicators alongside an existing method can lead to analysis paralysis. Pure price action enthusiasts can also utilize this approach to developing a robust trading strategy that draws up trading psychology and tried and tested concepts. As we will see, there is grounds for seeing the minute c' wave as the beginning of a minor fifth. Additionally, it appears that the a-b-c correction will likely represent the minor fourth wave, as suggested above.

When Prechter refers to the second retracement as marking the beginning of the next impulse wave of larger degree, it appears that he is refering to the minute b' wave that is in the same direction as the prevailing trend. I use the term "prevailing trend" here, instead of "impulse" because, once the prevailing trend becomes bearish, it is downward movement that is divided into five "impulse"-like waves and upward, countertrend movement that is divided into three "corrective"-like waves.

By referring to the prevailing trend in this instance, I think it is easier to apply Elliott Wave to bear markets. The minute a'-b'-c' correction appears to be part of a countertrend, minor fourth wave. What this seems to suggest is that there will be a minute a' wave that, beginning on October 10th, will test the October highs from the beginning of the month.

Chartists using 1 to 3 wave degrees can simply label the highest degree waves with upper case Roman numerals I,II,III,IV,V,a,b,c , the middle degree waves with numbers 1,2,3,4,5,A,B,C and the lowest degree waves with lower case Roman numerals i,ii,iii,iv,v,a. This provides three distinct groups for labeling various waves. Basic Sequence There are two types of waves: Impulse waves move in the direction of the larger degree wave.

When the larger degree wave is up, advancing waves are impulsive and declining waves are corrective. When the larger degree wave is down, impulse waves are down and corrective waves are up. Impulse waves, also called motive waves, move with the bigger trend or larger degree wave. Corrective waves move against the larger degree wave. The chart above shows a rising 5-wave sequence. The entire wave is up as it moves from the lower left to the upper right of the chart. Waves 1,3 and 5 are impulse waves because they move with the trend.

Waves 2 and 4 are corrective waves because they move against this bigger trend. A basic impulse advance forms a 5-wave sequence. A basic corrective wave forms with three waves, typically a, b and c. The chart below shows an abc corrective sequence. Notice that waves a and c are impulse waves green. This is because they are in the direction of the larger degree wave. This entire move is clearly down, which represents the larger degree wave. Waves a and c move with the larger degree wave and are therefore impulse waves.

Wave b, on the other hand, moves against the larger degree wave and is a corrective wave red. Combining a basic 5 wave impulse sequence with a basic 3 wave corrective sequence yields a complete Elliott Wave sequence, which is a total of 8 waves.

According to Elliott, this complete sequence is divided into two distinct phases: The abc corrective phase represents a correction of the larger impulse phase. These 8-wave charts show two larger degree waves I and II as well as the lesser degree waves within these larger degree waves. Waves are one lesser degree than Wave I. By extension, Wave I is one larger degree than Waves Waves a-b-c are one lesser degree than Wave II. Fractal Nature Elliott Wave is fractal.

This means that wave structure for the GrandSuper Cycle is the same as for the minuette. No matter how big or small the wave degree, impulse waves take on a 5-wave sequence and corrective waves take on a 3-wave sequence. Any impulse wave subdivides into 5 smaller waves. Any corrective wave subdivides into three smaller waves.

 

Wave Five Extension Rules 

This article looks at the wave five extension Elliott wave pattern, written by internationally known author and trader Thomas Bulkowski.

Free Elliott Wave Strategies - Elliott wave extensions - Learn to use free Elliott wave strategies in the real world for accurate market forecasts, market timing and target prices. This article looks at the wave three extension Elliott wave pattern, written by internationally known author and trader Thomas Bulkowski. 

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Wave Three Extension Rules

Elliott Wave Theory is named after Ralph Nelson Elliott (28 July – 15 January ). He was an American accountant and author. Inspired by the Dow Theory and by observations found throughout nature, Elliott concluded that the movement of the stock market could be predicted by observing and. Elliott Wave Extensions within a 5 wave move April 24, By EWF Vlada In this article blog you will learn how to deal with Elliott Wave Extensions which occur within impulsive structures.

At times, as I study Elliott Wave analysis, I feel a bit like the character Private Joker from the war movie, Full Metal Jacket: "This is my wave count. The 3rd wave extension is drawn upon the Elliott wave theory. The Elliott Wave theory is a rather simple and a straight forward theory that was created by Ralph Nelson Elliott. The Elliott Wave theory was first published in in the book, "The Wave principle." Early on, the Elliott wave theory came under numerous [ ].

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