Ralph Elliott observed that financial markets move in predictable patterns of waves, consisting of 5 waves in the direction of the trend (motive waves) followed by 3 waves in the counter trend (corrective waves). He called this the Elliott Wave Principle. The document discusses key aspects of impulse waves, one of the common patterns observed in Elliott Wave analysis, including their 5 wave structure and characteristics of each wave. It also provides guidance on how to identify and trade impulse wave patterns.

1. The Elliott Wave Principle
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Every Day Common News
• Crude Oil Prices Fall as IEA Report Hints Glut to Continue
Crude oil prices fell after the International Energy Agency downgraded
expectations for demand… DailyFX, September 14, 2016
• GBP/USD Breaks Weekly Lows on CPI Data
The GBP/USD reaches new weekly lows on worse than expected CPI Data. DailyFX,
September 14, 2016.
• FOREX-Yen slips broadly on fears BOJ could cut negative rates more deeply.
Reuters, September 14, 2016.
• US Dollar To Take Cues from FOMC Minutes. The most common occurrence!!
The Question Is, How and When Do You Plan And
Execute Your Trades??

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Financial Markets Are Patterned

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Ralph Nelson Elliott (1871 – 1948)
•Mass psychology/Market Behaviour trends and reverses in recognizable patterns, that he called waves.
•They are building blocks of larger versions of similar patterns and in turn, become the building blocks for
patterns of the next larger size and so on.
•In 1938, he coined this phenomenon The Wave Principle.
•Nature’s Law — The Secret of the Universe

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Predict Market Directions
Identify Turning Points
Entries and Exit for positions

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MOTIVE WAVES
Key Characteristics
• Five-wave structures, numbered 1-5
• In the direction of the main trend of one larger degree
• Wave 2 cannot retrace more than 100% of wave 1
• Wave 3 can never be the shortest and is often the longest

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MOTIVE WAVES
Five-Wave Structures
Impulse
Diagonal Triangles

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IMPULSE WAVES
Key Characteristics
• Wave 4 never enters the price territory of wave 1.
• Actionary waves 1, 3 and 5 are motive waves.
• Wave 3 is always an impulse wave.

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EXTENSIONS
Key Characteristics
• Elongated impulse wave
• Appears in either wave 1, 3 or 5
• Often seen in wave 3 for the stock market
• Often seen in wave 5 in commodities

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DIAGONAL TRIANGLES
Key Characteristics
• Wave 4 almost always moves into the price territory of wave 1
• Waves 1, 3 and 5 are composed of three sub waves, not five
• Found at termination points of larger pattern, indicating exhaustion of larger pattern
• Normally has wedge shape within two converging lines

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19. How To Identify And Trade Impulse Waves
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