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Extended Waves in Trading

 Extended Waves in Trading

Whenever you are looking for an impulsive move try to take into consideration that at least one wave needs to be extended. An impulsive move should be formed out of five different waves, of a smaller degree, three to the upside and two to the downside (if the whole impulsive move is rising).

Out of those three waves that are moving to the upside, keep in mind that at least one needs to be extended and the extension is considered to be 161.8% out of the next longest wave.

The most typical wave to extend is the third wave, and in this case the extension it is normally applied in relation to the first wave. However, it may be the case that the impulsive move as a whole to be double extended, and in this case the fifth wave should be extended as well, but this time 161.8% from the next longest wave, which should be the third.

Anyways, as stated earlier, the first most likely wave to be extended is the third wave, being followed by the fifth and then the first one. When you have a fifth wave extension this is usually happening when markets are being caught on the wrong side as mainly you get the feeling that squeezes are all over the place.

In the case of a first wave extension what is happening is that normally such a situation appears when a wedge it is formed and all the preceding waves are smaller than the first one. It may take also the form of a terminal impulse and this impulse is formed out of a small series of three waves of a lower degree. So kind of tricky if you ask me, but once getting the rules right you may be in for some revelation for your technical analysis.

The point I am trying to make with this extensions is that sometimes, regardless of what kind of online forex news is hitting the wires, markets have the tendency to keep moving until the extended levels are reached and will discount the specific news just like that.

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