Elliott Wave Part 1 – Impulsive Phases
“The Wave Principle” was a book written my R.N. Elliott in the 1930’s. In his book Elliott described a recurring cycle that is made up of what he referred to as an impulsive phase (trend), followed by a corrective phase (counter trend). Elliott identified five legs or waves within each of the impulsive phases and three or more waves in the corrective phase (he stated that the three leg correction was the most common.) Elliott labeled each of the waves in the impulsive phase with a number (1,2,3,4,5) and each of the waves in the corrective phase with a letter (A,B,C). Impulsive and corrective phases can be either bullish or bearish.
To further complicate things, Elliott stated that each of the waves within a 1,2,3,4,5,A,B,C cycle would subdivide into a smaller set of waves. For example, wave one is an impulsive phase made up of a smaller five wave impulse and wave two is a corrective phase made up of a smaller three wave correction. Elliott made reference to some specific rules in regard to the five wave impulsive trend structure…
1) Wave two should not exceed the beginning of wave one.
2) Wave four should not invade the territory of wave one.
3) Wave three is never the shortest.
The five wave impulsive phase is always easy to identify on a chart. It is a strong directional move that does not have any overlapping waves. This impulsive phase is very different from the corrective phase. The corrective phase is made up of choppy market action with overlapping waves. From time to time, the Gartley Trader newsletter will make reference to impulsive phases as per R.N. Elliott’s definition. In the next article we will have a closer look at Elliott’s corrective phases.
Ross Beck, DMS, FCSI