Patterns

Introduction

Talk about the importance of patterns and correlation with EWT.

Impulse Waves

What is an Impulse Wave?

An impulse wave is pattern when price moves swiftly towards its cycle target. Impulse waves are found within cycles when waves extend. Within an impulse sequence wave 3 tends to reach beyond 161.8% of wave 1 and the wave 4 never overlaps with the peak of wave 1. Impulse waves generally form within the parameters of the extension cycle and is a strong signal for technical analysis. (See EWT Rules Section)

Diagonals

What are Diagonals?

Diagonals are a commonly found pattern and considered very reliable when calculated within the parameters of a diagonal. Traders often refer to diagonals as a falling or rising wedge pattern. Understanding when and where these patterns print along with their parameters can offer trade opportunities and a larger perspective on near-mid term price paths.

"Leading 5,3,5,3,5 Impulse Diagonal (Impulse)"
"Leading 3,3,3,3,3 Corrective Diagonal (Zig Zag)"
"Ending 5,3,5,3,5 Impulse Diagonal (Impulse)"
"Ending 3,3,3,3,3 Corrective Diagonal (Zig Zag)"

Diagonal Rules

There are two types of diagonal structures. One that is corrective (3,3,3,3,3), and one that is impulsive (5,3,5,3,5). Either version can show up in corrective and impulsive conditions.

  • Diagonals can be a leading or ending 5 wave sequence therefore cannot be a wave 3 to its entirety.
  • Waves 2 & 4 generally overlap (not a rule but is common and a main characteristic of diagonals.
  • Elliott Wave Rules apply (i.e. wave 3 cannot be the shortest, etc.)
  • Diagonals can be contracting (usual) or expending (unusual).
  • When contracting, wave 3 is usually extended. When expanding, wave 5 is usually extended.
  • The end of a diagonal cannot exceed the apex of the contracting trendlines.
  • Leading diagonals often occur at the onset of a correction.
  • It is common for price to overshoot the trendlines on pivots, then return to the inside of a diagonal channel.
"$TSLA Leading 5,3,5,3,5 Impulsive Diagonal for wave A in a wave 2 Zig Zag"

Zig Zags & Flats

"$NVDA max chart highlighting multiple Zig Zag patterns."

What is a Zig Zag?

The Zig Zag corrective pattern is a 5,3,5 move and one of the most commonly found patterns in stock charts. Zig Zags are powerful patterns that print on all time/price frames and offers a lot of important data for traders. Whether scalping, swinging, or looking for a longer trade, zig zags usually offer insight to one or all three types of trading opportunities.

Zig Zag Structure

Zig Zags are typically composed of 5 waves for "A", 3 swings for "B", & 5 waves for "C". The most common target for wave "C" is 100% the length of wave "A" from "B". Wave A & C must be 5 waves, wave B can be any corrective structure (i.e. zig zag, triangle, or combination). 100%-161.8% the length of A for C is the general target for corrective zig zags but can sometimes extend to the 261.8% extension.

Flats

Flats are a 3,3,5 structure correction common in sideways markets and one sided trends. Waves A & B can be any 3 swing corrective structure, wave C must be 5 waves. Wave B generally retraces most of wave A. Target for wave C is generally 100% the length of wave A but can also be 61.8% or 123.6%. Wave C in flat corrections should not reach 161.8%.

Expanded Flats

Expanded flats are 3,3,5 structure are sometimes found in tricky corrections during strong bullish or bearish trends. Waves A & B can be any 3 swing corrective structure, wave C must be 5 waves. Wave B ends 100%+ the length of A, typically 123.6% but never more than 140%. Wave C ends 100%-161.8% the length of wave A.

Running Flats

Running flats are similar to but rarer than expanded flats. When this pattern does print, it's usually a wave 2 leading into a strong wave 3 (hence the short wave C). Waves A & B can be any 3 swing corrective structure, wave C must be 5 waves. Wave B ends 100%+ the length of A, typically 123.6% but never more than 140%. Wave C ends 61.8%-100% the length of wave A.

"$MSFT - expanded flat 3,3,5 structure - After a 5 wave advance $MSFT stock pulls back for wave 2 in a expanded flat 3,3,5 structure.*Note how the expanded flat target aligns with EWT rules for a wave 2 retracement."

Triangles

What are Triangle patterns?

Triangles are a consolidating 3,3,3,3,3 configuration and can only be found in wave 4 and wave B structures. Identifying triangles can offer near term trade opportunities along with a greater perspective of the parent pattern whether it be part of a corrective (wave B) structure or part of an impulsive (wave 4) structure.

Triangle Rules & Guide

  • Triangles only appear in Wave 4s & Wave Bs.
  • Composed by 5 connecting Zig Zag family corrections within a consolidating channel.
  • Wave A must be a zig zag or flat.
  • Wave B must be in the Zig Zag corrective family.
  • Wave C can be any corrective combination except triangles (i.e. zig zag family or WXY).
  • Wave D can be any corrective combination except triangles.
  • Wave E can be a zig zag or a triangle. When in expanding triangle, wave E is always a Zig Zag.

Combination Patterns

"$AAPL - WXY corrective combination for wave 2"

What is a WXY pattern?

Corrections often connect 2 or more corrective patterns together. When this happens it is labelled WXY.

  • W = Corrective Pattern 1
  • X = Connector (Pattern 2)
  • Y = Corrective Pattern 3

WXY Rules & Guide

WXY Patterns may print when there is uncertainty in the marketplace and/or when specific retracement levels have not been met.

  • Wave W can be any zig zag family pattern or a WXY itself.
  • Wave X can be any corrective pattern and typically retraces 50%-61.8% of W.
  • Wave Y must be a Zig Zag and targets 61.8%, 100%, or 123.8% the length of wave W.
  • Wave Y CANNOT reach 161.8% of Wave W (or it's not a WXY).
Section End
You have reached the end of the section. All sections are meant to work together. Several times of review may reveal a greater understanding of it or offer you inspiration for your own process.
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