Elliott Wave

Technical Analysis
Course - Part 3
Surfing the Waves with Richard Tataru

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About the Author

Richard is passionate about technical analysis with

years of charting experience under his belt. When it
comes to his insights and how he analyses the markets,
he uses leading analysis tools. In particular, Elliott Wave
Analysis is his forte, and he dedicates the majority of his
time to using and perfecting this analytical method.
Richard uses Elliott Waves in combination with Struc-
tures, Patterns, Divergences, and then spices things up
with Vibration Levels, Fibonacci measurements, Chan-
neling, Break-outs or Flag formations.

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 CONTENT & COURSE STRUCTURE

MOTIVE (IMPULSE) WAVES 4

Impulse 5

Extension 6

Diagonal 10

Ending diagonal 12

Leading diagonal 14

Sit back and surf the waves, it’ll be worth your while!

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 ELLIOTT WAVE PRINCIPLE – COURSE MODULE
As we previously discussed in part 1, Richard delivers the course in way that allows you to
develop a whole new approach to trading or to perfect your current strategy. Besides the
Elliott Wave Principle, it will also include Fibonacci Mathematical Measurements, Consolida-
tion Areas, Points of Interest or Vibration Levels, Divergences (Differences in the Price
Action), Types of Structure, and so much more.

In part 3 of the series we will be looking at impulse waves and their characteristics.

Before we get started on the Elliot Wave Course and talk about how this Principle can be
applied to Forex & CFD trading, please be aware that that the following material has been
published for educational purposes only and should not be considered as immediate
investment advice. Should you attempt to use any of the information provided, please
acknowledge the risks involved.

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 MOTIVE WAVES
Motive Waves always move in the same direction of the Dominant Trend and their goal is
to make progress. They are easy to recognize because of their sustained and violent
moves. Within a Motive Swing, Wave 2 never retraces more than 100% of Wave 1, Wave 4
never retraces more than 100% of Wave 3 and Wave 3 will always surpass Wave 1.

As Elliott stated, Wave 3 mustn’t be the shortest Motive Wave, therefore, if it travels with a
higher percentage than either Wave 1 or 5, the rule is fulfilled.

Wave formations disaallowed by the Elliot Wave Theroy

5

1 3 5
3

1 4
1

2 4
2 2

Figure 1. The above image indicates the wave formations that defy the rules set out in the
first eBook of the series. The first part shows how Wave 2 cannot be beyond the start of
Wave 1. The second part of the image indicates how Wave 3 can never be the shortest
impulse wave. The final part shows how Wave 4 can never cross into the same price area
as Wave 1.

Now, there are 3 types of Motive Waves which are destined to make progress in a trend:
Impulses, Ending & Leading Diagonals.

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 IMPULSE
An Impulse is the most common Motive Wave in which Wave 4 never overlaps with Wave
1 or enters its territory.

In an Impulse one of the motive sub-waves (1, 3 or 5) would almost always present an
extension, and the Sequence is always 5-3-5-3-5, without any exceptions.

The rules mentioned in Ebook 1 governs all Motive Waves and should never be disregard-
ed. This is to make sure that correct counting or labeling is achieved.

5
5
3
5 3 2
B
B C
3 1 4
1 A 2
4

A 3
1 2 B 4
1
5 4 C 5
1
4 A 3
3 B

5
1
2
C
A
4

2 C
2

Figure 2. This image highlights the impulses within the overall wave cycle. Showing the
impulse waves 1,3 and 5. Waves 2 and 4 indicate the corrective waves. With A, B and C
representing the trend correction.

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 EXTENSION
Extensions represent those sustained rallies with exaggerated sub-divisions, in which one
of the Motive Sub-Waves themselves present a prolonged move.

Only one Extension per each Impulse is accepted, and this provides a very useful guide on
expected lengths of upcoming waves. For example: if wave 3 has the same length as wave
1 then we would most probably expect an extension in wave 5. Alternatively, if wave 3
extends, then wave 5 should resemble wave 1 as duration and length.

Let’s get a little more complex! Extensions can also occur within extensions, making this
the sub-wave extension of the larger degree extension. Traders these days often look for
the 3 of 3’s.

Bull Market Bear Market

5
3
1 4 2
2 4
1
3 5
First Wave Extension
5 2
3
1
4
4
1
3
2 Third Wave Extension 5
5
2

3 4
1
1 3
4
2 Fifth Wave Extension 5

Figure 3. Indicates the different ways that extensions can appear in different types of
impulse waves.

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 5
(5)
Third Wave Extension Fifth Wave Extension 5
of of
Third Wave Extension Fifth Wave Extension
3
3
(5) 1 4

(3) 2
(3) 4
5 (4)
3 (1) Five waves of
(4) Minor
degree
1 4 (2)
3

(1) 2

4
(2)
1 1 Five waves of
Intermediate degree

2 2

Five waves of Primary degree

Figure 4. Demonstrates how an impulse can present extensions within the sub-waves, at
different stages of the impulse phase.

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 Wave 3 is typically and most commonly the extended wave, hence the reason why Wave
Traders tend to form the habit of labeling the extension in its early stages of development.
A good way to spot an extension would be when Wave 3 is proven to be unacceptable. For
example, when wave 3 is shorter than Wave 1 or when the retracement (Wave 4) enters
Wave 1’s territory, in which case it would need to be relabeled as the 1st sub-wave in the
extension itself.

5 (3)

(4)

3 (1)
1 1

(2)
4
2 2

INCORRECT COUNT CORRECT COUNT

wave 4 cannot enter the price an extended wave
territory of waves 1 or 2 3 is in progress

Figure 5. Illustrates how an extension should be properly labelled when wave 4 overlaps
with wave 1.

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 TRUNCATION
Following an exaggerated extension, a phenomenon called ‘’truncation’’ may occur in (and
only in) the last 5th Wave. When wave 5 does not move beyond the end of Wave 3, R.N.
Elliott referred to it as ‘’failure’’ but, in modern technical analysis traders call it ‘’truncation”
or “truncated fifth”. This phenomenon rarely occurs and it represents the countering side’s
power, after the exaggerated extension is showing exhaustion signs, accompanied by a
sustained Divergence.

Such truncation cannot be accurately seen in advance and can only be validated by the
presumption that Wave 5 contains the Impulse Structure.

3 5
2 Bear Market Truncation
1
4 4
1
2 Bull Market Truncation
3 5

Figure 6. Illustrates how a bull and bear market truncation would appear, when wave 5 pres-
ents an impulsive sequence but fails to move beyond the end of wave 3.

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 DIAGONAL
The Diagonal does not present an extension, therefore it is not an Impulse, but a special
Motive Wave. This structure presents the characteristics of an Impulse, where corrective
legs do not retrace more than 100% of the previous moves in favor of the main trend. How-
ever, when the other two rules are broken: Wave 3 could reflect as the shortest swing (rare-
ly) and Wave 4 always overlaps with Wave 1. It’s a hybrid, with motive and corrective
features.

Diagonals take either 3-3-3-3-3 or 5-3-5-3-5 forms in their Structures, depending on their
location, and are usually signs of drastic changes in trends. They take a Wedge shape within
two converging lines and are used by traders as reversal confirmations.

(5)
5 (5)
5
3 3
1 1
(3) (3)
4
2
4 (a)
2
(1) (1) (4)
(4) (a)

(2) (2)

Figure 7. The image illustrates a contract- Figure 8. The image illustrates a expand-
ing ending diagonal in the 5th wave. ing ending diagonal in the 5th wave.

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 5
(B)
3
5
3
2 1 4

b c
2

a 1
4 4
b c
(A) a b a
c b
1 a 2
c b
3 a
c
5
(C)

Figure 9. The image illustrates a contract- Figure 10. The image illustrates a leading
ing ending diagonal in the C wave. diagonal in the 1st wave.

(C)
(A)
5
3
1

2
(B)

Figure 11. The image illustrates a leading

diagonal in the A wave.

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 ENDING DIAGONAL
The Ending Diagonal is a pattern that occurs when the preceding move has gone ‘’too far
too fast”, as Elliott put it. This pattern can be found mostly in the fifth wave position, at the
end of an impulse. It usually signals dramatic change of price action direction due to pres-
ent Divergences. It can also be located in an A-B-C Corrective Structure, but only in the final
C Wave.
An ending diagonal is indicating exhaustion of the larger movement, hence the reason why
it can be found at the termination points of larger patterns. An ending diagonal which is
rising is a Bearish sign and one which is declining is a Bullish sign.
Characteristics:

3-3-3-3-3 Structure with all 5 swings subdividing into Zig-Zags (a-b-c)

Takes a wedge shape within two converging lines
Wave 4 overlaps with Wave 1 but not exceeding the start of Wave 2
Wave 1 is the longest swing and Wave 3 cannot be shorter than Wave 5
Located in the 5th Wave position of an Impulse or in a C Wave within an A-B-C Correction
Wave 5 usually breaks the converging line before the change
Reversal pattern which is usually accompanied by a noticeable Divergence

In a uptrend In a downtrend
(5) or C
5
c Ending Diagonal:
2
3 b c
c 1) Consists of five waves, labeled
1-2-3-4-5
1 b a
2) Each wave subdivides into a a b
c a
b zig-zag a-b-c or w-x-y
4
b a a c
3) Waves 1 and 4 overlap in price b a a
c b
a 4 4) Wave 1 is usually the longest
a b c
5) Wave 3 can not be the shortest 1 b a
among waves 1, 3 and 5 c
b c 6) Ending diagonals occur in the 3
2 position of wave 5 of an impulse
or wave C of a correction c
5
(5) or C

Figure 12. Demonstrates the ending diagonal in both an uptrend and downtrend in the 5th
or C wave position.

An Ending Diagonal can also take an Expanding shape in which the lines are diverging. All
other characteristics apply as an Ending Diagonal except for the facts that Wave 3 could be
the shortest swing and Wave 5 is the strongest.

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 MOTIVE - ENDING EXPANDING DIAGONAL

BULL Market BEAR Market

5
V throw-over 4

II
IV
III

3 I I
3

III
IV
II
throw-over
4 V

Figure 13. Demonstrates the expanding ending diagonal in both an uptrend and down-
trend in the 5th wave position.

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 Leading Diagonal
The Leading Diagonal is also a reversal pattern, which presents 5 overlapping and contract-
ing Impulses, within a wedge shape converging lines. A Leading Diagonal is usually a sign of
a deep retracement and it can be found in a Wave 1 position or in a Wave A within an A-B-C
correction. Unlike the Ending Diagonal, besides the 3-3-3-3-3 Structure it can also take a
5-3-5-3-5 form, in which only Wave 2 and 4 subdivide as Zig-Zags (a-b-c).

Characteristics:
3-3-3-3-3 or 5-3-5-3-5 Structure with Waves 2 and 4 subdividing into a Zig-Zags (a-b-c)
Takes a wedge shape within two converging lines
Wave 1 is the longest swing and Wave 3 cannot be shorter than Wave 5
Wave 4 overlaps with Wave 1 and presents a retracement much smaller than Wave 2
Continuation pattern which is usually followed by a deep pull-back
Located in the 1st Wave position of an Impulse or in an A Wave within an A-B-C Correction

(1)/A
In an uptrend In a dowtrend
5
c
3 ii 2
c c
1 b a
v i a b 4 (2)/B
iii iv
b a a b
a
c
c b a b
iv iii
a b 4 (2)/B v
i 1 b a
c
c 3
ii 2 c
Leading Diagonal: 5
1) Consists of five waves, labeled 1-2-3-4-5
(1)/A
2) Waves 2 and 4 are always corrective
3) Waves 1, 3 and 5 can be corrective or impulsive
4) Wave 1 is usually the longest
5) Wave 3 cannot be the shortest among waves 1, 3 and 5
6) Leading diagonals occur in the position of the first wave of an
impulse or wave A of a zig-zag correction

Figure 14. Demonstrates the leading diagonal in both an uptrend and downtrend in the 1st
or A wave position.

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