Most investors guess at where price is going. I'll show you how to map it using Elliott Wave and Fibonacci confluence, the same framework I use on every setup I post.
How to tell a real impulse from a fake one
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Last issue covered corrections, the part of the chart where you wait. This one covers impulses, the part where you get paid. Every week I watch accounts on FinX label a new wave 1 the moment price bounces. Most of the time it is a wave B, or the first leg of a bigger correction. It rolls over on everyone who bought it. You can avoid that. Learn the three rules, how each wave behaves, where each one tends to end, and why I never call wave 1 while it is still forming. Before the charts: two 1-1 places have opened for February. Details at the bottom. Why impulses matterAn impulse is a five wave move in the direction of the larger trend. Three pushes with the trend, two pullbacks against it. Five waves tells you the trend. Three waves tells you price is correcting. That one read decides which side of the market you want to be on. It also tells you what comes next. When five waves complete, a correction follows. When wave 1 completes, wave 2 follows, and wave 2 is your entry into wave 3. Wave 3 is where the money is made. The three rulesThree rules decide whether you are looking at an impulse at all. Break one and the count is wrong.
Rule 3 has one exception: diagonals. They overlap by design, and I am saving them for their own issue. Until then, treat rule 3 as absolute. Where you are wrong: any one of the three breaks. Do not stretch the labels to make it fit. Recount. The personality of each waveEach wave has a character. Once you know them, you can often place yourself in the cycle before you count anything. Wave 1 is weak and unconvincing. Most traders still think the downtrend is intact and call it a relief rally. You will rarely spot it in real time, so I do not try. Wave 2 is a sharp, deep pullback that makes the downtrend feel like it is back. It shakes out the people who bought wave 1, and usually ends between the 0.618 and 0.786 fib of wave 1. Wave 3 is the strongest wave. Wide candles, rising volume, RSI pushing into overbought. The public notices and momentum traders pile in. It tends to reach the 1.618 fib extension of wave 1, and often goes further. Wave 4 is slow, choppy and frustrating. A sideways grind that gives back a small part of wave 3. Expect it to end between the 0.382 and 0.5 fib of wave 3. Wave 5 looks strong on the surface while momentum fades underneath. RSI diverges, volume runs lighter than in wave 3, and the crowd is at its most bullish. The end of wave 5 is the riskiest place on the chart to buy. That was the $WYFI top from email three. Bearish divergence, a rejection off the 1 fib extension, and most of FinX still pumping it. Momentum is the quickest way to tell wave 3 from wave 5. The highest RSI or MACD reading of the whole move usually prints in wave 3. Wave 5 pushes price to a new high on weaker momentum. So if you cannot tell which one you are in, find where momentum peaked. Momentum still making new highs with price means wave 3 is likely still running. A new price high on lower momentum than an earlier push points to wave 5. ExtensionsMost impulses have one wave that stretches much further than the other two. That is an extension. Zoom in and the extended wave splits into its own clear five waves. In stocks it is nearly always wave 3. An extended wave 3 often reaches the 1.618 to 2.618 of wave 1. $WYFI subwave 3 ran to the 2.618. An extended wave 3 changes what you expect from wave 5. Waves 1 and 5 tend towards equality, with wave 5 often travelling 0.618 to 1 times the length of wave 1. Wave 5 is also more likely to run out of steam, and sometimes fails to make a new high at all. This is also where a lot of people get caught. Because an extended wave 3 splits into its own five waves, you can count five clean waves, call the top and sell. Then price keeps going. You were counting waves 1 to 5 inside wave 3, and waves 4 and 5 of the bigger move were still to come. Check the higher timeframe before you call any top. If your five waves sit inside a larger wave 3, the pullback that follows is wave 4. That is a buying opportunity, not the end of the trend. Momentum helps here too. If the strongest RSI reading of the whole move sits inside your count, you are probably still in wave 3. TargetsTwo fib extensions cover most of what you need. For wave 3, draw a fib extension from the start of wave 1, to the end of wave 1, to the end of wave 2. The 1.618 is the primary target. If price drives through it with momentum, look to the 2.618. For wave 5, draw the extension from the start of wave 1, to the end of wave 3, to the end of wave 4. I covered this in email three. The 0.618 to 1 marks a standard wave 5. If it extends, look to the 1.141 to 1.414. Then check it with a channel. Connect the end of wave 2 to the end of wave 4, copy that line and place it across the top of wave 3. Wave 5 often ends at or near it. When the channel and the fib land in the same area, I pay attention. When price blows straight through the channel, wave 5 is probably extending. A quick wordThis is how you recognise an impulse. The hard part is calling it live, on your own chart, under pressure. On a finished chart every impulse looks obvious. In real time, wave 1 looks like a dead cat bounce and wave 2 looks like the bottom falling out. Most people never close that gap. More on that at the bottom. TruncationSometimes wave 5 fails to make a new high. The five waves complete, but the final high sits below the wave 3 high. That is a truncated fifth. It usually follows an extended, exhausting wave 3, when buyers have nothing left. The reversal after it tends to be fast and deep. Truncations are rare, and one will catch you out if you have never seen it. Real or fakeBefore you put a single number on a chart, answer one question. Is this move impulsive or corrective? Everything else follows from the answer. A real impulse:
A fake one:
If you have to squint to find five waves, you are not looking at an impulse. A fake one: $FLNCLook at the rally into (B). It went parabolic and tagged the 0.786 fib at $28.63. Judge it on speed alone and you would call it a new impulse. Now compare it with the move on the left into ①. That one was controlled, with clean pushes and orderly pullbacks. The (B) rally was three waves, spiking and overlapping. Then it broke the trendline, and wave C started down in five. Same lesson as $TE last issue. Speed is not structure. A parabolic wave B can pay well, but it does not start a new trend. Never call one before it happensMost people lose money with Elliott Wave right here. They see a bounce off a low, label it wave 1 and buy it. Then it turns out to be a wave B. I do not try to call wave 1. I wait for it to prove itself.
You give up wave 1 doing this. That is the price of knowing the impulse was real, and wave 3 is the bigger move anyway. For the stop, I use one of two levels. On a single entry it sits below the wave 2 low. If the fib levels are bunched together and I scale in across them, it sits below the start of wave 1, where the count dies. Where you are wrong: price breaks the start of wave 1. Rule 1 is broken, and there was never an impulse. A real one: $CELH$CELH is about as clean as an impulse gets. Every wave of ① landed on its fib.
Then ② corrected in three waves down to the 0.786 at $22.60. (B) rallied almost back to the high before C took it all away. Now wave ③ has started. (1) ran five waves up into the mid $60s. (2) has pulled back to the 0.887 at $26.50, and price is sitting right on it. That is deep, deeper than the 0.618 to 0.786 I usually look for. It is still a valid wave 2. Rule 1 only breaks if (2) retraces all of (1), at $22.60. If the count holds, the 1.618 extension for ③ sits at $150.43. Next I want to see price break the falling trendline from the (1) high. Why this is my A* setup$CELH is showing a 1-2, 1-2. Cycle waves ① and ② are complete. Inside wave ③, (1) and (2) have now completed too. Two wave 1s and two wave 2s, stacked on top of each other. That makes the next move (3) of ③. Wave 3 of wave 3, the strongest and fastest part of any impulse, because two degrees of buying pressure hit at the same time. This is my A* entry. The end of a wave 2 inside a larger wave 3, with risk defined at the start of (1) and the most powerful move on the chart still ahead. I am not in $CELH yet. I am happy buying here, with my stop below the start of (1) at $22.60. Where you are wrong: price breaks below $22.60. (2) would have retraced all of (1), and rule 1 says there was no (1). If that happens, my alternate is that ② never finished. The whole move down to $22.60 was only wave A, the rally into the mid $60s was wave B, and wave C is next. Here is that count on X. The checklistBefore I call anything an impulse, I run through this.
If a rule fails, it is not an impulse. If the rest look borderline, wait for more evidence. The market usually gives you another opportunity. Still here?Most people don't get this far. That tells me something about you. Remember the gap I mentioned halfway through, between spotting a pattern afterwards and calling it live? That gap is what my 1-1 mentorship is built around. Eight weekly sessions, just you and me, on your own charts. You learn to read a chart the way I read one, and to call it live on your own. There's homework every week. It's the premium end and priced accordingly. I only take a few people at a time. January is full. There are two places left for February. Current prices hold for anyone who places a deposit by 31 October. They go up after that. There's no launch post coming. No thread, no announcement. Just this, to the people who read to the bottom. If you're interested, reply "mentorship". I'll send you a few short questions and, if it's a fit, a plan built around your answers. No calls, no pressure. Your turnThis is email five. Diagonals are on my list for a future issue. Tell me what else you want in email six. Most requested topic wins. Drop a direct reply or a comment under any post with suggestions. Missed the last four? They're here: https://echoanalysis.kit.com/ Echo Analysis Everything above is my own analysis and my own positioning. It is not financial advice and it is not a recommendation to buy or sell anything. Do your own research and manage your own risk. |
Echo Analysis
Most investors guess at where price is going. I'll show you how to map it using Elliott Wave and Fibonacci confluence, the same framework I use on every setup I post.
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