Wave 1: Typically the shortest of all the waves. We generally won’t know that it’s wave 1 until it’s followed by a corrective wave that does not break the starting point of wave 1.
Wave 2: A Corrective Wave that tends to move in an overlapping fashion (corrective waves will be studied in detail later), and does not go lower than the origin of wave 1 before moving up again, creating a higher low in this example.
Wave 3: Is what we call an Impulse Wave, as this wave’s magnitude is always larger than wave 1. The impulse wave also tends to have a steeper angle of ascent than wave 1. **If you look closely at the 5 wave structures, even the smaller sub structures, you will notice that wave 3 is always the longest. This is a very important characteristic to take
note of.
Wave 4: Another Corrective Wave, and this wave should never retrace lower than the high of wave 1. If wave 4 was to go lower than the high of wave 1, it will provide us with a sign that the previous wave structure was in fact not a trend, but probably some sort of correction instead!
Wave 5: Will generally break the high of wave 3 in another 5 smaller waves, and is generally the same measured length as wave 1. It is during this wave that we need to be cautious of a possible change in trend direction. In a lot of cases, wave 5 won’t move in an impulsive manner and have a flatter angle of ascent compared to wave 3
Knowing where you are within a trend is one of the most powerful tools for any trader, and understanding the geometry of market waves is critical to being able to do it.
Element 2: Implementing Pitchforks
We use the Wave element to know where we are within the trend so that we know which direction is a more profitable opportunity for us to trade. Now, by adding the Pitchfork to the appropriate pivot based on our wave forecast, we can identify potential price movement and can hone in on high-probability trade setups.
Element 3: Fibonacci
Fibonacci Retracements
Fibonacci Extensions
Fibonacci Extensions are a way of projecting these ratios forward in time to find possible areas of support or resistance in the future. Price tends to react to these extensions when they eventually reach them, and they make good targets to trade toward when entering a position. We will also use them to measure corrections and for identifying wave characteristics.
Before we draw our extensions, we need a higher low followed by the break of a previous high. If we are of the opinion that price will continue higher, we would expect our Fibonacci ratios to act us resistance.
1. What is the trend doing?
2. Where are we within the trend cycle right now?
3. Where are viable entry points to enter during the next trend move?
4. Where are viable exit points to take my profit once it’s achieved?
When you know those 4 pieces of information, you are leaps and bounds ahead of the average trader. By studying market geometry and applying your own strategy to what you’ve learned in this free eBook, I’m confident that you will see vast improvement.
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