elliott wave ebook part 3 - ORBEX...?ref_id=c6426 ELLIOTT WAVE PRINCIPLE – COURSE MODULE In part 3...

Elliott Wave Technical Analysis Course - Part 3Surfing the Waves with Richard Tataru

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Who is Orbex?Orbex is a global award-winning online forex broker, fully licensed and regulated by CySEC, specializing in the provision of access to the world’s biggest and most liquid financial mar-kets. Orbex has a rich experience of ensuring superior customer service. Traders enjoy 24/5 multilingual support, exceptional trading conditions, and a wealth of educational material.

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About the Author

Richard is passionate about technical analysis with years of charting experience under his belt. When it comes to his insights and how he analyses the markets, he uses leading analysis tools. In particular, Elliott Wave Analysis is his forte, and he dedicates the majority of his time to using and perfecting this analytical method. Richard uses Elliott Waves in combination with Struc-tures, Patterns, Divergences, and then spices things up with Vibration Levels, Fibonacci measurements, Chan-neling, Break-outs or Flag formations.

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CONTENT & COURSE STRUCTURE

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5

MOTIVE (IMPULSE) WAVES

Impulse

Extension

Diagonal

Ending diagonal

Leading diagonal

Sit back and surf the waves, it’ll be worth your while!

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ELLIOTT WAVE PRINCIPLE – COURSE MODULE

In part 3 of the series we will be looking at impulse waves and their characteristics.

Before we get started on the Elliot Wave Course and talk about how this Principle can be applied to Forex & CFD trading, please be aware that that the following material has been published for educational purposes only and should not be considered as immediate investment advice. Should you attempt to use any of the information provided, please acknowledge the risks involved.

As we previously discussed in part 1, Richard delivers the course in way that allows you to develop a whole new approach to trading or to perfect your current strategy. Besides the Elliott Wave Principle, it will also include Fibonacci Mathematical Measurements, Consolida-tion Areas, Points of Interest or Vibration Levels, Divergences (Differences in the Price Action), Types of Structure, and so much more.

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MOTIVE WAVESMotive Waves always move in the same direction of the Dominant Trend and their goal is to make progress. They are easy to recognize because of their sustained and violent moves. Within a Motive Swing, Wave 2 never retraces more than 100% of Wave 1, Wave 4 never retraces more than 100% of Wave 3 and Wave 3 will always surpass Wave 1.

As Elliott stated, Wave 3 mustn’t be the shortest Motive Wave, therefore, if it travels with a higher percentage than either Wave 1 or 5, the rule is fulfilled.

Figure 1. The above image indicates the wave formations that defy the rules set out in the first eBook of the series. The first part shows how Wave 2 cannot be beyond the start of Wave 1. The second part of the image indicates how Wave 3 can never be the shortest impulse wave. The final part shows how Wave 4 can never cross into the same price area as Wave 1.

Now, there are 3 types of Motive Waves which are destined to make progress in a trend: Impulses, Ending & Leading Diagonals.

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2 2 2

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Wave formations disaallowed by the Elliot Wave Theroy

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IMPULSEAn Impulse is the most common Motive Wave in which Wave 4 never overlaps with Wave 1 or enters its territory.

In an Impulse one of the motive sub-waves (1, 3 or 5) would almost always present an extension, and the Sequence is always 5-3-5-3-5, without any exceptions.

The rules mentioned in Ebook 1 governs all Motive Waves and should never be disregard-ed. This is to make sure that correct counting or labeling is achieved.

Figure 2. This image highlights the impulses within the overall wave cycle. Showing the impulse waves 1,3 and 5. Waves 2 and 4 indicate the corrective waves. With A, B and C representing the trend correction.

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4 A

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Ready to start charting impulses? Open your account now! FX Trading & CFD trading involves a high

level of risk, including capital invested.


EXTENSIONExtensions represent those sustained rallies with exaggerated sub-divisions, in which one of the Motive Sub-Waves themselves present a prolonged move.

Only one Extension per each Impulse is accepted, and this provides a very useful guide on expected lengths of upcoming waves. For example: if wave 3 has the same length as wave 1 then we would most probably expect an extension in wave 5. Alternatively, if wave 3 extends, then wave 5 should resemble wave 1 as duration and length.

Let’s get a little more complex! Extensions can also occur within extensions, making this the sub-wave extension of the larger degree extension. Traders these days often look for the 3 of 3’s.

Figure 3. Indicates the different ways that extensions can appear in different types of impulse waves.

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Bear Market

First Wave Extension

Third Wave Extension

Fifth Wave Extension

Bull Market

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Figure 4. Demonstrates how an impulse can present extensions within the sub-waves, at different stages of the impulse phase.

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Third Wave Extensionof

Third Wave Extension

Fifth Wave Extensionof

Fifth Wave Extension

Five waves ofMinordegree

Five waves ofIntermediate degree

Five waves of Primary degree

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(1)


Figure 5. Illustrates how an extension should be properly labelled when wave 4 overlaps with wave 1.

Wave 3 is typically and most commonly the extended wave, hence the reason why Wave Traders tend to form the habit of labeling the extension in its early stages of development. A good way to spot an extension would be when Wave 3 is proven to be unacceptable. For example, when wave 3 is shorter than Wave 1 or when the retracement (Wave 4) enters Wave 1’s territory, in which case it would need to be relabeled as the 1st sub-wave in the extension itself.

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(2)

(4)

(3)

(1)1 1

2 2

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INCORRECT COUNT wave 4 cannot enter the price

territory of waves 1 or 2

CORRECT COUNTan extended wave

3 is in progress



Following an exaggerated extension, a phenomenon called ‘’truncation’’ may occur in (and only in) the last 5th Wave. When wave 5 does not move beyond the end of Wave 3, R.N. Elliott referred to it as ‘’failure’’ but, in modern technical analysis traders call it ‘’truncation” or “truncated fifth”. This phenomenon rarely occurs and it represents the countering side’s power, after the exaggerated extension is showing exhaustion signs, accompanied by a sustained Divergence.

Such truncation cannot be accurately seen in advance and can only be validated by the presumption that Wave 5 contains the Impulse Structure.

Figure 6. Illustrates how a bull and bear market truncation would appear, when wave 5 pres-ents an impulsive sequence but fails to move beyond the end of wave 3.

TRUNCATION

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5Bull Market Truncation

Bear Market Truncation

Do you want to clarify truncations with the Author? Arrange your one-to-one session now! FX Trading & CFD trading involves a high

level of risk, including capital invested.


The Diagonal does not present an extension, therefore it is not an Impulse, but a special Motive Wave. This structure presents the characteristics of an Impulse, where corrective legs do not retrace more than 100% of the previous moves in favor of the main trend. How-ever, when the other two rules are broken: Wave 3 could reflect as the shortest swing (rare-ly) and Wave 4 always overlaps with Wave 1. It’s a hybrid, with motive and corrective features.

Diagonals take either 3-3-3-3-3 or 5-3-5-3-5 forms in their Structures, depending on their location, and are usually signs of drastic changes in trends. They take a Wedge shape within two converging lines and are used by traders as reversal confirmations.

Figure 7. The image illustrates a contract-ing ending diagonal in the 5th wave.

DIAGONAL

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Figure 8. The image illustrates a expand-ing ending diagonal in the 5th wave.

(2)

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Figure 9. The image illustrates a contract-ing ending diagonal in the C wave.

Figure 10. The image illustrates a leading diagonal in the 1st wave.

Figure 11. The image illustrates a leading diagonal in the A wave.

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The Ending Diagonal is a pattern that occurs when the preceding move has gone ‘’too far too fast”, as Elliott put it. This pattern can be found mostly in the fifth wave position, at the end of an impulse. It usually signals dramatic change of price action direction due to pres-ent Divergences. It can also be located in an A-B-C Corrective Structure, but only in the final C Wave.

An ending diagonal is indicating exhaustion of the larger movement, hence the reason why it can be found at the termination points of larger patterns. An ending diagonal which is rising is a Bearish sign and one which is declining is a Bullish sign.

Characteristics:

Figure 12. Demonstrates the ending diagonal in both an uptrend and downtrend in the 5th or C wave position.

3-3-3-3-3 Structure with all 5 swings subdividing into Zig-Zags (a-b-c)Takes a wedge shape within two converging linesWave 4 overlaps with Wave 1 but not exceeding the start of Wave 2Wave 1 is the longest swing and Wave 3 cannot be shorter than Wave 5Located in the 5th Wave position of an Impulse or in a C Wave within an A-B-C CorrectionWave 5 usually breaks the converging line before the changeReversal pattern which is usually accompanied by a noticeable Divergence

ENDING DIAGONAL

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(5) or C

(5) or C

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Ending Diagonal:

1) Consists of five waves, labeled 1-2-3-4-52) Each wave subdivides into a zig-zag a-b-c or w-x-y3) Waves 1 and 4 overlap in price4) Wave 1 is usually the longest5) Wave 3 can not be the shortest among waves 1, 3 and 56) Ending diagonals occur in the position of wave 5 of an impulse or wave C of a correction

An Ending Diagonal can also take an Expanding shape in which the lines are diverging. All other characteristics apply as an Ending Diagonal except for the facts that Wave 3 could be the shortest swing and Wave 5 is the strongest.



Figure 13. Demonstrates the expanding ending diagonal in both an uptrend and down-trend in the 5th wave position.

MOTIVE - ENDING EXPANDING DIAGONAL

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IVIII

III

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4throw-over

BULL Market

throw-over

BEAR Market

Do you feel confident enough to identify expanding ending diagonals? Open your account and try it on the MT4.

FX Trading & CFD trading involves a high level of risk, including capital invested.


The Leading Diagonal is also a reversal pattern, which presents 5 overlapping and contract-ing Impulses, within a wedge shape converging lines. A Leading Diagonal is usually a sign of a deep retracement and it can be found in a Wave 1 position or in a Wave A within an A-B-C correction. Unlike the Ending Diagonal, besides the 3-3-3-3-3 Structure it can also take a 5-3-5-3-5 form, in which only Wave 2 and 4 subdivide as Zig-Zags (a-b-c).

Characteristics:

Figure 14. Demonstrates the leading diagonal in both an uptrend and downtrend in the 1st or A wave position.

Leading Diagonal

3-3-3-3-3 or 5-3-5-3-5 Structure with Waves 2 and 4 subdividing into a Zig-Zags (a-b-c)Takes a wedge shape within two converging linesWave 1 is the longest swing and Wave 3 cannot be shorter than Wave 5Wave 4 overlaps with Wave 1 and presents a retracement much smaller than Wave 2Continuation pattern which is usually followed by a deep pull-backLocated in the 1st Wave position of an Impulse or in an A Wave within an A-B-C Correction

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Leading Diagonal:

1) Consists of five waves, labeled 1-2-3-4-52) Waves 2 and 4 are always corrective3) Waves 1, 3 and 5 can be corrective or impulsive4) Wave 1 is usually the longest5) Wave 3 cannot be the shortest among waves 1, 3 and 56) Leading diagonals occur in the position of the first wave of an impulse or wave A of a zig-zag correction

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