Elliot Wave Explanation (I) ~ live Example Crudeoil
Fibonacci Extension & Retracement Ratios:
• Wave 2 – Retracement
◦ 50%, 61.8%, 65%, 78.6%, or 88.6% of wave 1
• Wave 3 – Extension
◦ 161.8%, 200%, 261.8%, or 323.6% of wave 1
• Wave 4 – Retracement
◦ 14.6%, 23.6%, or 38.2%, 40% of wave 3
◦ Ideally it should not exceed more than 50%
▪ If wave 4 does exceed 50% of wave 3, consider a different count, but do
not rule it out
• Wave 5 – Extension
◦ Equal (100%) to wave 1
◦ Wave 5 is 61.8% of waves 1+3
Rules:
• An impulse consists of 5 internal waves.
• Wave 1 and 5 always have to be an impulse, or a diagonal (Leading for wave 1 –
Ending for wave 5)
• Wave 3 always has to be an impulse.
• Wave 3 can never be the shortest wave
◦ It can be shorter than wave 1 or 5, but never the shortest
• Wave 2 cannot retrace more than 100% of wave 1
• Wave 2 can be any corrective pattern
◦ Except a triangle
• Wave 4 can be any corrective pattern
• Wave 4 can never move beyond the end of wave 1 (Otherwise it is a diagonal)
Guidelines:
• Wave 1 is the least common wave to extend
• Wave 5 should end with momentum divergence (RSI is the simplest oscillator to spot
this)
• Wave 5 can fail to go beyond the end of wave 3
◦ This is called truncation, but it is not very common
▪ Truncation gives warning of underlying weakness or strength in the
market
• Wave 3 usually has the greatest extension
◦ Occasionally two waves will extend
▪ Never will all three waves extend
• When wave 3 extends, wave 5 tends to equal wave 1 in length
• Waves 2 and 4 tend to create alternation between each other
◦ See last page for more details on alternation
• Wave 2 typically retraces to deeper levels of wave 1, than wave 4 does relative to
wave 3
• Wave 2 usually forms as a zigzag or double/triple zigzag
• Wave 4 usually forms as a triangle, double/triple threes, or at
• Extended waves can contain exaggerated subdivisions within them
• Usually two of waves 1, 3 & 5 exhibit a Fibonacci ratio
• Channel lines and Fibonacci targets are inferior to the wave count
• In most cases, wave 3 has the highest volume
◦ If volume during the 5th wave is as high as the 3rd, an extended 5th wave is
expected
• Wave 2 – Retracement
◦ 50%, 61.8%, 65%, 78.6%, or 88.6% of wave 1
• Wave 3 – Extension
◦ 161.8%, 200%, 261.8%, or 323.6% of wave 1
• Wave 4 – Retracement
◦ 14.6%, 23.6%, or 38.2%, 40% of wave 3
◦ Ideally it should not exceed more than 50%
▪ If wave 4 does exceed 50% of wave 3, consider a different count, but do
not rule it out
• Wave 5 – Extension
◦ Equal (100%) to wave 1
◦ Wave 5 is 61.8% of waves 1+3
Rules:
• An impulse consists of 5 internal waves.
• Wave 1 and 5 always have to be an impulse, or a diagonal (Leading for wave 1 –
Ending for wave 5)
• Wave 3 always has to be an impulse.
• Wave 3 can never be the shortest wave
◦ It can be shorter than wave 1 or 5, but never the shortest
• Wave 2 cannot retrace more than 100% of wave 1
• Wave 2 can be any corrective pattern
◦ Except a triangle
• Wave 4 can be any corrective pattern
• Wave 4 can never move beyond the end of wave 1 (Otherwise it is a diagonal)
Guidelines:
• Wave 1 is the least common wave to extend
• Wave 5 should end with momentum divergence (RSI is the simplest oscillator to spot
this)
• Wave 5 can fail to go beyond the end of wave 3
◦ This is called truncation, but it is not very common
▪ Truncation gives warning of underlying weakness or strength in the
market
• Wave 3 usually has the greatest extension
◦ Occasionally two waves will extend
▪ Never will all three waves extend
• When wave 3 extends, wave 5 tends to equal wave 1 in length
• Waves 2 and 4 tend to create alternation between each other
◦ See last page for more details on alternation
• Wave 2 typically retraces to deeper levels of wave 1, than wave 4 does relative to
wave 3
• Wave 2 usually forms as a zigzag or double/triple zigzag
• Wave 4 usually forms as a triangle, double/triple threes, or at
• Extended waves can contain exaggerated subdivisions within them
• Usually two of waves 1, 3 & 5 exhibit a Fibonacci ratio
• Channel lines and Fibonacci targets are inferior to the wave count
• In most cases, wave 3 has the highest volume
◦ If volume during the 5th wave is as high as the 3rd, an extended 5th wave is
expected
Trade closed: target reached