What Happens After Elliott Wave 5?
Wave 5 typically ends with an abrupt decline; this represents the typical correction to an impulse.
Triangles often retrace back to Wave 2 of their previous Wave 5, while this pattern can also occur in Zigzag or Flat charts as a complex correction.
Wave 6
Dependent upon which wave extends during an impulsive move, different consolidation times should be anticipated for its two corrective waves; this principle is known as alternation principle.
Corrections generally move smoothly in the direction of one larger trend, yet resistance from this same trend can cause corrections to have less of a clear shape than their motive structures. As such, corrective waves often appear more complex or longer-lived than motive waves of equal magnitude.
Truncated wave fives are rare occurrences and usually only seen when markets experience strong trends. You could have mislabeled your wave three as W4, but are actually still in complex W4. To know for sure whether you are currently in an actual wave five or not, the projected trend line from wave 3 should break upwards slightly to indicate either that your are now experiencing normal wave 5 action, or your wave 3 represents an extremely short impulse wave.
Wave 7
Elliott wave theory is a form of technical analysis used to detect market trends by studying impulses and corrections within markets. It uses rules to describe their structure; although these may not always hold true, these are useful guidelines that help understand patterns within markets.
Waves that travel in one direction tend to form either zigzags or flats; waves moving in the opposite direction usually take on triangle shapes; the number of triangles may vary but a diagonal triangle is most frequently found among them; its fifth wave usually being the longest and strongest one. As is sometimes called, this wave type is also known as the truncated wave. Although rare, this form can appear when W3 was particularly strong or when corrective waves have failed (W4). Due to indicator divergence and potential misleading trader errors associated with such waves, this truncated form should be treated with extreme caution by traders. To help ensure you know whether your market is currently in corrective or advance phase.
Wave 8
The Elliott Wave Principle’s fractal nature means that progress (impulse waves) typically occurs in five waves while corrections (rectifier waves) take eight waves to complete. It provides guidelines for recognizing patterns which tend to repeat themselves in market behavior on large-scale time frames.
One such rule states that a fourth wave must not retrace more than 38.2% of its predecessor as per Fibonacci relations; similarly, fifth waves cannot overlap the start of an impulse wave.
Another guideline to keep in mind when creating waves is alternation, meaning that second waves should typically feature sharp moves while fourth waves have more complex structures. While this principle does hold true in general, triangles can sometimes serve as second waves while still fulfilling this rule (except within zigzags ).
Wave 9
Elliott discovered that corrective waves within an impulse sequence retrace each other with Fibonacci proportion. Furthermore, the lengths of each wave tend to recur; impulse waves are easily identified by counting how often they sideways move.
When a 5th wave extension occurs, its subsequent correction typically retraces to near the extreme of a lesser 4th wave extension. This pattern follows a very important rule which dictates that subsequent correction cannot extend further than this initial 5th wave extension.
If the motive wave in question is extended, its underlying trend tends to be bullish and likely lead to new highs being reached again; alternatively, bearish waves could signal market tops.
Impulse sequences are intricate, but one unbreakable rule holds: the shorter wave must always be shorter than its longer wave counterpart. Furthermore, waves 3 and 5 often appear nearly equal in terms of both amplitude and time duration.
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