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8 Scenarios After An Elliott Wave Impulse Pattern Completes 2019-07-21 15 - 54 - 31
8 Scenarios After An Elliott Wave Impulse Pattern Completes 2019-07-21 15 - 54 - 31
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The Elliott wave impulse pattern is a foundational pattern of Elliott Wave Theory. Ralph Nelson Elliott
discovered back in the 1930s that the market moved in waves of ve and three legs. These ve and
three wave patterns make up larger patterns that can be used to determine how mature the current
trend is and where likely levels of retracement may take place. Today, we will focus on likely levels of
retracement after an Elliott wave impulse pattern completes.
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(https://a.c-dn.net/b/0CjQwN/depth-of-elliott-wave-
correction_body_IdealizedImpulsewhatnext.png.full.png)
Learn more about the foundational Elliott wave patterns in the beginner
(https://www.dailyfx.com/free_guide-tg.html?ref-author=wagner) and advanced Elliott wave guides
(https://www.dailyfx.com/free_guide-tg.html?ref-author=wagner).
Elliott wave impulse patterns appear only in certain spots of the Elliott wave sequence. Therefore, it is
important to know not only where an impulse wave may form, but also to know where the impulse
wave may NOT be found. Knowing these positions can help you anticipate the depth of the subsequent
correction giving you guidance on how aggressive to pursue the anticipated wave.
Since the market is fractal, let’s break down the Elliott wave impulse
(https://www.dailyfx.com/forex/education/trading_tips/trend_of_the_day/2017/12/22/Elliott-wave-
impulse-JWedu.html) so that two degrees of trend are visible. On the image below, you will nd 21
sub-wave labels (blue and red) that make up the larger ve wave impulse (black).
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Of all these waves, waves ii, iv, b, 2, 4 are NOT impulse waves. By process of elimination, an impulse
wave can be found in these positions: i, iii, v, a, c, 1, 3, 5.
Impulse waves might make up a portion of a corrective wave, but not ALL of the corrective wave. For
example, it could be wave a of 2. However, an impulse will not be ALL of wave 2 because only 3 waves
are present. Out of these 21 sub-waves in an impulse, only wave iii and wave 3 MUST BE impulse
waves themselves.
(https://a.c-dn.net/b/3LIMf2/depth-of-elliott-wave-
correction_body_IdealizedImpulsewithSubwaves.png.full.png)
Notice that after each impulse wave, a correction of that impulse takes place. In some instances, the
correction is shallow, the correction is deep, or the correction is led off with another impulse wave.
Let’s investigate more closely the eight positions in the Elliott wave sequence where an impulse wave
can be found and discuss what typically happens next.
i ii 38-78% of 'i'
a b 38-78% of 'a'
1 2 38-78% of '1'
3 4 38% of '3'
As you can see above, the location of the nal impulse wave can have a dramatic effect on what is
expected to happen on the next move. Sometimes, the retracements are relatively shallow retracing
only 38%. Sometime, the corrections can be large so as to fully retrace the previous impulse wave.
There is one thing in common between all scenarios in that a minimum retracement to the previous
fourth wave typically occurs. Bear in mind that if you are analyzing a sequence that is terminating at a
longer term and higher degree, then these corrections can be quite large and damaging.
Elliott wave is deductive by nature. Anything is possible until we can eliminate those scenarios that
break one or more of Elliott’s rules. From there, we assess the probability of a scenario based on the
look and feel of the wave picture based on numerous guidelines. Therefore, if you believe an impulse
wave is nearing its nal stages, zoom out to see what larger pattern that impulse wave is constructing.
Based on what you identify through that deductive process, you can focus on a small number of
scenarios above. Therefore, if you can identify and count the completed impulse wave, you can begin
to identify minimum targets for a corrective move. A novice Elliott wave technician can further
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eliminate those scenarios above that do not t within the larger picture.
Jeremy is a Certi ed Elliott Wave Analyst with a Master’s designation. You can follow his Elliott wave
analysis via regularly published Elliott wave articles
(https://www.dailyfx.com/authors/bio/Jeremy_Wagner) and through his US Opening Bell webinar
(https://www.dailyfx.com/registerToSeminar?webinar=3770113599872496899).
Learn more about how Jeremy got started into Elliott wave from his podcast interview on Trading
Global Markets Decoded. You can access through:
Stitcher - https://www.stitcher.com/podcast/trading-global-markets-decoded-with-
dailyfx/e/57431393 (https://www.stitcher.com/podcast/trading-global-markets-decoded-with-
dailyfx/e/57431393)
itunes - https://itunes.apple.com/us/podcast/trading-global-markets-decoded/id1440995971
(https://itunes.apple.com/us/podcast/trading-global-markets-decoded/id1440995971)
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