Elliott wave impulse
What is a five-part Elliott wave impulse, and how would you recognise one forming in a market week?
In plain words
In one school of wave counting, an impulse is a five-part move in the main direction: three legs with the trend, separated by two counter-trend legs, labelled waves one through five. The counter-legs retrace part of the previous leg but do not cancel it, so each new trend leg ends beyond the prior one's endpoint.
Why it matters
Impulse counting is one attempt to split a trend into segments a trader can size and time against. It matters mainly as a framework for placing invalidation: if a supposed count is broken by price, the count is discarded. Because the labels are applied after the fact, two counters can legitimately disagree about the same move.
In a real week: ETH, week of 18 July 2022
In the week of 18 July 2022, ETH opened at 1338.65 and set its low of 1336.07 at 00:00 UTC on Monday, then rose 18.11% that day with a largest hourly gain of 4.4% at 23:00 UTC. A counter-move appeared as the worst day, -2.55% on 22 July. Price then advanced to a high of 1664.34 on 24 July at 22:00 UTC and closed at 1597.70, up 19.35% for the week, in the upper third of the range, with volume above the prior 12-week average.
A common mistake
Treating a five-leg reading as confirmation that a trend will continue. The count is descriptive and assigned in hindsight; it says nothing by itself about what happens after the fifth leg.