Elliott Wave Impulse

An impulse is Elliott's name for the trending leg that moves the market in the direction of the next larger wave. It subdivides into five. The middle motive wave, wave three, is typically the strongest and is never the shortest in a valid count. Wave five is the last push, often accompanied by the kind of enthusiasm or despair that older writers called excess. After wave five, the theory expects a correction of larger degree, not another immediate impulse in the same direction. That expectation is the tradable idea, and it is also where counts go to be revised, because what looked like wave five becomes wave one of an extension the moment the market keeps going.

Identify a candidate impulse only if the three rules hold. If wave four overlaps wave one, it is not a standard impulse. Call it a diagonal only if it actually has the wedge shape and the five-wave internal structure the diagonal requires. Otherwise you do not have this pattern. Mark the invalidation at the start of the impulse for a trade based on the whole structure, or at the relevant wave-two or wave-four extreme for a smaller entry. Extensions, a motive wave that is itself a larger five, are common in wave three. They make the impulse longer than a tidy textbook drawing. Do not flatten a runner solely because five swings have printed if your own invalidation, a break of wave four, has not printed.

A bullish impulse is a five-wave rise. The continuation entry the theory prefers is the end of wave four, provided wave four has not overlapped wave one, with the stop under wave four and a target projected from the length of wave one. The reversal idea is after a completed fifth wave, and it is a countertrend trade until a larger correction is actually underway. Treat the fifth-wave short as a reversal setup, with reversal size, not as a fact.

A bearish impulse is a five-wave decline in a larger downtrend. Selling the end of wave four, a bounce that fails, is the continuation. Buying the end of wave five is the attempt to catch the correction, and it fails when the fifth wave extends. The rules do not tell you in real time whether the fifth wave is done. Price breaking the wave-four extreme in the trend direction says it was not done. That break is the exit from the early reversal.

Labelling any five wiggles an impulse while ignoring the overlap rule. Also declaring wave three shortest because you counted the swings to fit a story. And shorting every new high as "wave five" in a bull market. Extended fives and extended threes are how bull markets last longer than a count. If the rule is not broken, the impulse can continue. Your boredom is not a wave.

Impulse rules are clearer than the rest of Elliott, and they still require a choice of which swings count. Two honest counts can disagree on whether a dip was wave four or a smaller wave two inside an extended three. The pattern does not include volume, though practitioners add it, and it does not include the calendar. A five-wave advance into an event is still an event. Use the invalidation as a hard price. Do not use the wave number as a substitute for one.