Impulsive and Corrective Waves

Video Transcription:

Hello, traders. Welcome to the Elliott Wave Theory course, and the first module, Introduction to the Elliott Wave Theory. Today we’re going to talk about impulsive and corrective waves, and what they mean inside the Elliott Wave Principle. This is very important for you, new comers, and for all of you traders that are new to the Elliott Wave Theory overall because this is what the EWT is based on.

So let’s start by defining what these impulsive and corrective waves are. The Elliott Wave Principle is based on a back and forward sequence of bearish and bullish sentiment in the market. We saw this on the first lesson on this course, and this is what creates waves in it. This back and forward sentiment between pessimism and optimism creates waves in the market. But the reason we are looking into impulsive and corrective waves is because the overall sentiment into market is not going to be the same with all the waves in it. Meaning that the back and forward pessimism and optimism, or the back and forward bearish and bullishness in the market is not going to be the same so it’s not going to create equally large waves.

impulsive and corrective waves

Ralph Nelson Elliott made the distinction between two classes of waves in the market: impulsive waves and corrective waves. Impulsive waves are normally larger than corrective wave because they contain in them the overall sentiment of the market. Now this means that in a bullish market the impulse wave will be the one going up and the corrective wave will be the ones going down. Now we’re talking here about bullish markets. So price is going up in the overall picture. Now for you to find the waves inside of it or the patterns in it and start counting waves, you need to first know which ones are the impulsive waves and which ones are the corrective waves. If we are in bullish market, the impulsive waves are going to be the ones going up and the corrective waves are going to be the one going down because the overall sentiment of the market is a bullish one. So the larger waves are going to be bullish and the shortest waves are going to be bearish.

The same is true in a bearish market. The impulsive waves will be the ones pulling price down, and the corrective waves will be the ones pulling price up. It’s the same, but in the opposite side of the market, if we are in a bearish market, the largest waves are going to be the bearish ones and the shortest waves are going to be the bullish ones. I know this sounds a little complicated but it’s really not, and I’m going to show you in a very simple example what I’m talking about. Before I do this, it is important to understand what we are talking about here because of how waves are counted in different patterns. I talked about this earlier in the lesson when I said that it’s important for you to know the overall sentiment of the market, because once you know if we are in a bullish or bearish market, you are going to know which ones are going to be the impulsive waves and corrective waves within the pattern, and it’s going to be easier for you to spot it and count the waves in it and trade with the Elliott Wave Principal.

impulsive and corrective wave examples

Now here’s the example of a bullish market. Price is going up. So this is going to be an impulsive wave, this is going to be a corrective wave, and this is going to be an impulsive wave. This is what we were talking about about the mass psychologist swings from pessimism to optimism. In this bullish market, we have optimism on what we are trading, or the product, or the financial instrument that we are looking at. It can be a stock, it can be a currency, it can be a futures contract, whatever. But there is some optimism about it. So we have an impulsive bullish wave, then we have a corrective wave because the back and forward between optimism and pessimism or bullishness and bearishness. Then again we have an impulsive wave coming in.

On a bearish market, on the contrary, this is going to be the impulsive wave. Why? Because there is pessimism about the financial instrument that we are looking at. It can be a stock, can be a commodity, it can be a currency payer, but the main or the important thing to understand here is that the overall outlook of this instrument is a bad one. So we have pessimism above what we are looking at and the impulsive wave is a bearish one. Then we have a corrective wave or an optimism that comes into the market and pulls price up before coming in on an impulsive wave to the downside.

So I know, now that you have looked at the example, it sounds very easy and not important at all, but you’re going to see that the further we go into this course the more important it will be for your wave count.

Adam

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Adam is an experienced financial trader who writes about Forex trading, binary options, technical analysis and more.

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