Wave 5 Position

Wave 5 Position

Elliott noted a variety of ways a Wave 5 could develop. This of course included an extended Wave 5 that would look similar to Figure 1.8.

Again, the argument tends to be that our target is much higher, and since the normal extension ratios would not reach that target, we should be aware of the potential for an extended Wave (5).

Figure 1.9 displays a long rally in the weekly AUDJPY chart. Note that in this original Elliott method of counting, Wave (3) was extended and was followed by an extended Wave [5] of Wave (5). Clearly I disagree with this counting method, and will highlight this in Chapters 3 and 4.

Figure 1.9 An Extended Wave in Weekly AUDJPY

Another potential Wave 5 is a Diagonal Triangle. Elliott noted that this has a different structure from a normal impulsive move, being constructed of five waves of three and commonly holding within a channel or within converging lines (as shown in Figure 1.10).

 In traditional pattern analysis this is obviously nothing more than a wedge, but Elliott refined the expectations by detailing that there needs to be five waves, three in the direction of the underlying trend with two intervening corrective waves. In general, those that practice Elliott Wave tend to change the labeling to (i), (ii), (iii), and so on, to differentiate impulsive waves 1, 3, and 5 constructed of five waves with those constructed of three waves.

Figure 1.11 shows how a Diagonal Triangle Wave 5 wave rally would appear on a chart, the example being the five-minute EURUSD chart.

Figure 1.11 A Diagonal Wave (5) in the Five-Minute EURUSD Chart

Elliott proposed that extended waves could appear in any of the three impulsive waves that is, Waves 1, 3, or 5 but only one impulsive wave could be extended in any one sequence of five waves.

In my own findings I feel this is really a reflection of an alternative structure and was misunderstood. Later, through the use of detailed measurements of waves, I shall describe why I have come to this conclusion.