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Trading Wave Structures

A healthy Elliott wave trader knows the wave structures and can easily recognise them.
A person can go online and learn the wave structures within two weeks.  That is only the first step, but the next one is to understand them and trade them flawlessly without jumping ahead of the message that is hidden in those structures.

This article will surely help one to become a better wave structures trader.
Let's get started.

Three Segment Wave Structures

When one is dealing with the wave structures, one must first break them into pieces or segments.  Ask the question:
how many segments have we got here?

Many will thank me for sharing this today.

For example one is analysing a zigzag pattern, one will clearly notice that it has three main segments.  Well, you already know that.  Don't you?  Alright. 

The zigzag, flat correction, wxy, triple zigzag are formed of three segments.

What one must check is the number of mini segments of each segment. 

Usually, the first segment of a zigzag will have five mini segment or minor waves like the third one.  The second segment will exhibit three components or minor waves.   Every time, one sees three segments, one will think of a correction.  Right? 

Ask the next question: what is it correcting.

On the other hand if it has five, one will think of an impulse wave.  Right?  It is crucial that one begins to ask those questions from the start.  Those questions will help one to put each segment at the right place, and ultimately decipher its function.  The advantage of those questions and breaking down into pieces each segment is to understand the most complex wave structures and interpret them.

If one comes across a structure that has three segments but the last segment has four mini segments (internal waves), one will expect another segment to makes the last segment a five-segment stucture.

That is why when one spots the formation of the last segment in its fourth mini segment, one will expect another mini segment to make it five unless there is a distortion or price structure deformation.

So, the first segment of a zigzag is A minor wave (subdivided into 5 mini segments) then the second one is B (subdivided into three mini segments). 


Now if the last segment (C minor wave) is underway and it starts 1, 2, 3, and 4.
Ops, what is going here?  For a wave structure trader, it must click fast.  Something is not adding up here because we think in three and five.

Please allow me to underline that point one more time.
An Elliott wave trader thinks in three and five at every level. 

When one counts one, two and three after an impulse wave (or in general), one will draw a line.  If it prints another segment, then we will argue that we do not work with four but three and five.  Please give us another segment to make it five.

Warning

Now, I need to remind wave traders that I am trying my best to simplify this subject.
Do not worry if it has not yet sank in.
Slowly but surely, you will get it.

Things can become a bit messier than normal if the mini segments are extended.  For example, one count 1, 2, 3, 4 during a correction.  Let say during the formation of the minor B wave of a zigzag pattern.  Naturally, one will be expecting a fifth mini segment (internal wave). Right?

However, that expectation may not be fulfilled in this case.  Why?  That is a very good question.

The reason is because in normal conditions, a corrective wave pattern comes in three.  So that 4th mini segment of that B minor wave of the zigzag may be the first segment of the start of an impulse wave (reversal after three) or an extension.
Please stay focused.

Alright, if it is a bit complex to you, go over it few times until you get it or visit 24Elliottwaves YouTube channel to ask more relevant questions.

Five-Segment Wave Structure

We expect a reversal after three and five wave structures unless one of the segments is extended.  The five-segment wave structure points to an impulse wave or motive wave in normal conditions. 

Read more about the secrets of motive here.

A wave count that reveals more than five waves or segments will flag a complete or growing extension.  After four waves count, one thinks of five.  Right?

After five waves count, one searches for an extension.  Either one or more of the segments are extended.  Beyond five waves, one knows that the expected reversal after five waves count is delayed as the extension is in play. 

Five waves also signal a continuation as soon as an extension is in play.  That is why when the price goes beyond the low or high of the A minor wave of a zigzag pattern, one knows there is more to come.  The same thing is true after it goes beyond the fifth wave during a motive wave.

My intention is to guide Elliott traders find more hidden wave patterns rules that one can deduct from the Elliott wave theory.

Write this down please.

"A breakout above the high or low of a five-wave structure signals a continuation until the price finds a valid resistance (uptrend) or support (downtrend)."

Also "if the price exhibits a corrective wave after a sharp move or structure that does not reveal its internal wave, one will consider the sharp move as an impulse wave."

Please feel free to quote me anywhere you like.  My name is George Beaulieu.

That is why even when one can not identify the internal waves of the A minor wave of the zigzag pattern, one is reassured that it is an impulse wave (of the zigzag itself) after the B corrective wave. 

Am I making sense?

Suppose the price rises from the point A to B very fast to the point that one can not isolate the internal waves.  If the subsequent wave is a corrective wave, one can say that an impulse or motive wave has preceded the correction.

These are guidelines, nothing more or less.

A five-wave structure (motive or impulsive wave) often follows a corrective wave.

Sometimes, instead of a normal impulse or motive wave, one will have an X-wave.
For example, first there was a trending phase (motive wave), then a correction zigzag or flat correction, then an X-wave then a correction abcde then an impulse or motive wave.

Conclusion

Alright, I think I have said enough.  The take away is to understand that in general, wave structures come either in three or five minor waves.  Therefore, any structure that reveals more than four waves compels one to expect five.  Similarly, a more than five-wave structure flags an extension.  That understanding will cause one to interpret more accurately the most complex or distorted wave structures.  In fact, as one gets more understanding of the hidden wave structures rules, one will quickly forecast the markets like an eagle-eye wave trader.

I hope, I have done my bit by sharing with you those wave structures trading tips.
For some, it may sound a bit complex or irrational in some cases, but hold the fire my dear.

Please go away and think of it for a while and if it later makes sense, use a demo trading account to gain more experience.

Well, I already begin to think of the next topic I will be sharing in the next article.  Please stay tuned because it will not be too long.

If this article has opened your understanding then feel free to share and bookmark it.  Also, remember to say few good words about us in your favourite trading and investor forums.

I wish you the very best in your wave structures trading.

This article is written by G Beaulieu
Founder of 24Elliottwave.com