Motive Waves

MOTIVE WAVES

Motive waves subdivide into five waves and always move in the same direction as the trend of one larger degree. They are straightforward and relatively easy to recognize and interpret.

Within motive waves, wave 2 always retraces less than 100% of wave 1, and wave 4 always retraces less than 100% of wave 3. Wave 3, moreover, always travels beyond the end of wave 1. The goal of a motive wave is to make progress, and these rules of formation assure that it will.

Elliott further discovered that in price terms, wave 3 is often the longest and never the shortest among the three actionary waves (1, 3 and 5) of a motive wave. As long as wave 3 undergoes a greater percentage movement than either wave 1 or 5, this rule is satisfied. It almost always holds on an arithmetic basis as well. There are two types of motive waves: impulse and diagonal triangle.

Impulse

The most common motive wave is an impulse. In an impulse, wave 4 does not enter the territory of (i.e., “over­lap”) wave 1. This rule holds for all non-leveraged “cash” markets. Futures markets, with their extreme leverage, can induce short term price extremes that would not occur in cash markets. Even so, overlapping is usually confined to daily and intraday price fluctuations and even then is rare. In addition, the actionary subwaves (1, 3 and 5) of an impulse are themselves motive, and subwave 3 is specifi­cally an impulse. Figures 2, 3 and 4 depict impulses in the 1, 3, 5, A and C wave positions.

As detailed in the preceding three paragraphs, there are only a few simple rules for interpreting impulses prop­erly. A rule is so called because it governs all waves to which it applies. Typical, yet not inevitable, characteris­tics of waves are called guidelines. Guidelines of impulse formation, including extension, truncation, alternation,

equality, channeling, personality and ratio relationships are discussed below. A rule should never be disregarded. In many years of practice with countless patterns, we have found but one instance above Subminuette degree when all other rules and guidelines combined to suggest that a rule was broken. Analysts who routinely break any of the rules detailed in this section are practicing some form of analysis other than that guided by the Wave Principle. These rules have great practical utility in correct count­ing, which we will explore further in discussing extensions.

Extension

Most impulses contain what Elliott called an exten­sion. Extensions are elongated impulses with exaggerated subdivisions. The vast majority of impulse waves do contain an extension in one and only one of their three motive subwaves (1, 3 or 5). The diagrams in Figure 4, illustrat­ing extensions, will clarify this point.

Often the third wave of an extended third wave is an extension, producing a profile such as shown in Figure 5.

Truncation

Elliott used the word “failure” to describe a situation in which the fifth wave does not move beyond the end of the third. We prefer the less connotative term, “truncation,” or “truncated fifth.” A truncation can usually be verified by noting that the presumed fifth wave contains the necessary five subwaves, as illustrated in Figures 6 and 7. Truncation often occurs following a particularly strong third wave.

Truncation gives warning of underlying weakness or strength in the market. In application, a truncated fifth wave will often cut short an expected target. This annoy­ance is counterbalanced by its clear implications for persistence in the new direction of trend.

Diagonal Triangles (Wedges)

A diagonal triangle is a special type of wave that oc­curs primarily in the fifth wave position at times when the preceding move has gone “too far too fast,” as Elliott put it. A diagonal triangle is a motive pattern, yet not an impulse, as it has one or two corrective characteristics. Diagonal tri­angles substitute for impulses at specific locations in the wave structure. They are the only five-wave structures in the di­rection of the main trend within which wave four almost always moves into the price ter­ritory of (i.e., overlaps) wave one. (See Figure 8.)