like the motive. The third Elliott wave extensions
are more frequent than the fifth wave extensions.
The first wave rarely extends therefore it is not
a common topic among the Elliott wave traders.
Today, I want to take another look at the first
wave extensions and more importantly reveal their
common factors. Let's get started.
What Are First Wave Extensions?
The first wave extension occurs when it is subdivided into
five minor waves. The first wave that is extended is prolonged
in length, height and on the time scale.
Moreover, the first, third and fifth minor waves of the first wave can also be extended. Note that the first Elliott wave does not regularly extend
like both the third and fifth wave.
What Can Cause First Wave Extensions?
A cluster of resistances ahead during the formation of the first
wave can cause the first wave extensions after the breakouts and
pullbacks to retest those key levels.
A financial instrument that is in a really bullish sector is more likely
to extend during the first wave due to a high demand.
A consistent fight between bullish and bearish market players
at the start of a trend can generate a very gorgeous first wave
Typically during an extended bullish first wave,
the bears believe that no one should be buying the asset, so they are
selling after every rally. On the hand, bullish fundamental investors
are loading the stock because they know better that the fundamentals
are improving rapidly.
That is the case when one group is completely
wrong without knowing it, and the other is spot on.
In the end, there is an extended first wave that aligns with the market
sentiment of those who got it right.
It is paramount that Elliott wave traders get into the habit of finding out
what has truly caused the first wave extensions. That will help one to
understand who are those that creating the new trend.
Most first wave extensions form what I label the irregular first wave. That irregular first wave is usually formed few months later after the Initial Public Offering (IPO). It is a phenomenon that long term investor must take advantage of.
I highly recommend to 24Elliottwaves traders to try everything to master the irregular first wave. An irregular first wave trader must always combine both the financials and technical wave trading like a pro. Please give it enough time and do not rush.
Another cause of the first wave extensions is an extended corrective phase.
So, previously there was a healthy trend that was corrected by a lengthy
correction (may be at least nine years correction). In that instance, if
the company reinvents, restructures and strengthens itself throughout that lengthy correction, one should not be surprised to see a very beautiful tall and extended first Elliott wave.
Are you smiling? That is good because I want you to remember that.
Please do not assume that the first wave will definitely extend because one of those factors is in place. It is possible but not guaranteed that it will extend. That is all.
Why Is First Wave Likely To Be Extended
After A Lengthy Correction?
Think of it for a second. Let me know if you got it right. You remember that I was barking about making rational deductions from normal Elliott wave rules to uncover hidden sub Elliott wave principles? That is exactly how I found out about the correct answer to this subtitle question.
An Elliott wave rule states that if the fourth Elliott wave is prolonged
(extended on the time scale) or lengthy then the fifth wave is more likely to extend. Right?
What I want you to do is to rationally change that rule a bit. Take it as it is stating that:
"after a lengthy corrective wave, the subsequent impulse wave is likely to extend".
Does it make sense to you? Or does it make you smash your expensive computer out of anger?
Alright, even if you disagree, please hold your thoughts and come back another day to scrutinise what I have just said.
Those who agree will quickly accept that it makes sense (rationally) to expect an extended first wave after a lengthy corrective phase. One example of a lengthy correction is WXY pattern or complex corrective waves that have taken a long time to be formed.
On the monthly chart, that could be nine or more years. On the hourly chart, that may be few days and so on. You got it now.
Rule Number One About First Wave Extensions
Like the third wave, the first wave extensions like a the fifth ones must be underlined by growing healthy fundamentals or market sentiment. Fundamentals and market sentiment switches are the two things that underline the Elliott wave extensions.
Without the improving fundamentals and market sentiment, the first wave extensions will fizzle out like a storm in a tea cup.
My Favourite First Wave Extensions
Technical traders always want to know what I favour so I will tell you now.
My favourite first wave extensions are the irregular first waves. Nothing else. So, I am combining the fundamentals and wave analysis after the IPO when I want to buy and hold for a medium to long term investment purpose.
The company must pass the Google finance acid test. It must have a brighter future in a sector that is not yet overbought but still bullish. To understand everything about my favourite first Elliott wave extensions, please read my article about the irregular first Elliott wave.
The first wave extension is a unique phenomenon that often confirms either strengthening or degrading financials at the start of a bullish or bearish trend (motive wave).
One must always combine the Elliott wave analysis with the fundamentals when one is dealing with the first wave extensions. There are normal first wave extensions, but the irregular first waves are unique 1st wave extensions that commonly occur after the Initial Public Offering (IPO).
The irregular first waves are my favourite first wave extensions.
In the near future, I will be compiling a list of first wave extensions charts that will illustrate everything that I have explained so far. Please stay tuned.
Thank you for reading. Please share and bookmark this article if you think it deserves it. I will really appreciate that. Please post relevant questions and comments at 24Elliottwaves YouTube channel, and I will get back to you in due course.