Wave Extensions

Video Transcription:

Hello, traders. Welcome to the Elliott Wave Theory Report and the third module, Advanced Elliott Wave Analysis.

In this session, we are going to talk about wave extensions, and more specifically, what happens after we find an extended wave or an impulse pattern. Because as you already know, the goal of the Elliott Wave Theory is to perfectly time your entries and exits. And by perfectly timing your entries and exits, you are going to be able to profit as much as from the move as you can. Okay, now in this lesson we are going to discuss how to correctly position your targets on a bear market, i.e., on an ABC correction after an extended fifth wave. So we are talking about an extended fifth wave on a five-wave impulse. And what we are going to learn here is where to position our targets if we are going to be trading the entire ABC corrective move, or even if you are only going to trade the C wave of the ABC correction, you need to know where to position your targets when you find an extended fifth wave on the previous impulse span.

Wave extensions

Elliott found out that typically, when we find an extended fifth wave, the target area of the ABC correction is the bottom of wave number two of the second degree count. Remember that when we are in a fifth extended wave on a five-wave impulse, the fifth wave has five sub-waves in it, I’m sorry. Sometimes the corrective ABC will be an extended flat, and in this case wave A will most likely end near the bottom of the second wave of the second degree count of wave five. Now, I know it sounds kind of strange and confusing, but it’s actually not. So I’m going to show you a diagram that will show you what I’m talking about.

We are in a bull market and of course this also works in a bear market because the rules apply to both of them. But the example here is in a bull market. We have the first wave, the second wave, the third wave, and the fourth wave of the five-wave impulse, and then we have an extended fifth wave, because we have five sub-waves inside the fifth wave — 1, 2, 3, 4, 5. Now, lets say that we are actually trading the C wave of the ABC corrective move. When we don’t have an extended fifth wave and we only have a normal basic structure, we already know where to put our targets at. But if we have an extension on the fifth wave of the five-wave impulse, actually, the profit targets or the targets go at the bottom of wave two or near the bottom of wave two. Remember you don’t have to put them right at the exact level because you want to get filled. And its practically impossible to profit from 100% of the move.

Now, this is an extended flat, okay, when you also find an extended fifth wave and you have the first wave hitting the target area, you know that you are going to be on an extended flat. Okay, so well what works for you to know where to take profit on a trade on the C-wave of the ABC correction, but if you have wave A that touches the target area, you know that you are going to be on an extended flat corrective move and you know that you are going to be using your [inaudible 00:04:24] on that two radius to enter at the B point and profit from a longer C wave.


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