# What Happens After Elliott Wave 5?

Elliott Wave theory holds that price tends to move in waves: impulse and corrective waves. A corrective wave usually retraces 50-61% of an earlier impulse move before continuing its upward journey.

Simple corrections typically involve zigzags while more complex corrections may include flats, triangles and irregulars. Sometimes diagonal triangles may appear as waves 1 or 5.

## Wave 5

If a sequence is trending upward, participants who bought during Wave 1 take profits and prices may drop significantly, creating Wave 2. Such price corrections often reach Fibonacci retracement levels and can have significant ramifications for investors.

Depth of the corrective wave is determined by impulse wave’s length; therefore, there are a few general rules which apply. One is that corrective waves should not overlap the end of Wave 1, rather they must have different lengths altogether. Another basic principle states that no five-wave sequence should have its shortest wave being overall shortest of all five waves combined in any one series.

Not forgetting, within impulsive waves there may be extensions; typically in the form of zigzags and double/triple zigzags. Triangles in which upper and lower trend lines diverge or expanding triangles where lower line extends outward can also display extensions which makes identifying waves as impulse or correction more challenging.

## Wave 6

Market participants in this wave attempt to take profits, which causes prices to decline and create wave 2. When prices reach their starting point again, participants begin buying again, leading prices back up causing wave 3 of the sequence.

Each impulse wave in a trend contains three motive waves and two corrective waves, providing traders with an indicator of possible trend changes that they can confirm with other technical analysis tools.

Corrections within an impulse wave typically retrace 50-61.88% of its preceding impulse wave, without overlap or equal length actionary waves – like Wave 3 which cannot match Wave 1; furthermore it cannot end beyond it either. Corrections can take many forms including flat, zigzag and triangle shapes as well as expanding flats which fulfill alternation rules by ending above Wave A’s high point and below its low.

## Wave 7

Wave five marks the final major move in any trend direction and often lacks the intensity of wave three; its relative lack of energy may also be evidenced by price divergences in momentum indicators that indicate that corrective actions might soon follow.

Normal Wave Five extension typically takes the form of either a flat or zigzag wave; this wave is known as the C Wave of an Impulse and in many instances will reach or even surpass its depths.

Additionally, Wave C will have an approximate relationship of 0.6181 with Wave 1 and 1.6818 with Wave 3. It may also truncate, although this is rare given that its zigzags and flats must alternate; otherwise both sides would form triangles simultaneously indicating incorrect counting of Wave 3.

## Wave 8

Wave 2 unfolds as a corrective move and cannot extend past its starting point in wave 1. Prices often retrace deeply during this stage and pessimism is generally high; volume often declines and channels lines can often be penetrated.

Elliott Wave theory describes wave 4 as the shortest wave and allows it to take on various shapes including zigzags, flats and triangles. According to its rules however, wave 4 must never cross into price territory of wave 1 at any point in time.

As is typical for markets, when correction of the fifth wave has occurred it will typically retrace not just its own course but that of all waves since Wave 1 started. This recent downward move may take the form of a zigzag or flat move with net travel equal to or exceeding that of previous waves by equal distance; expanding triangles may extend their net travel by an amount equal to or even exceeding 1.618 x the length of Wave 5. This ratio applies also for double and triple corrections.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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