# Waves within Waves

### Video Transcription:

Hello, traders. Welcome to the Elliott Wave Theory course, and the first module, Introduction to the Elliott Wave Theory. In this lesson, we’re going to learn about waves within waves, which is the second degree of the Elliot Wave Principle or the basic design of the Elliott Wave Theory that you’re going to learn. This is important, because once you put price within a basic design, you are going to have to spot the good levels for you to take the designated trade that you came up with the Elliot Wave analysis.

So we’re going to start by defining what waves within waves is. In the previous lessons, we have learned everything about the basic Elliot Wave design: the five-wave and the three-wave, the five directional move and the three corrective move. That’s the overall structure that you will be looking to place price in. But how do we know when a wave has or is about to end? Either corrective or directional to take a position using the Elliot Wave Principle.

The behavior of the market is the same in the higher timeframes as it is in the lower timeframes. This is why we have waves within waves. That means that in the first wave of the basic design, there are five smaller waves making a five-wave pattern within, a 1, 2, 3, 4, 5 wave within the first wave of the overall structure. And by this logic, Wave 2 of the basic design has to have a 3-way corrective pattern within. A-B-C within the second wave, okay? Why? Because it’s a corrective wave.

This also means that inside the first wave of the pattern within the first wave of the overall design, we have also a five-wave directional pattern inside of it. But we are just sticking with the second degree for this example and we are not going to move forward because it’s going to get too complicated to draw in these slides and it’s going to get a little bit messy.

So we’re going to go to an example right now, and I’m going to give you an example of a five-wave pattern. Here you have a Wave 1, Wave 2, Wave 3, Wave 4, and Wave 5. This is a five wave pattern, but it can also be Wave 1 of a larger pattern. This means that we have a five-way pattern inside the first wave of a larger design. By this logic, we have an A-B-C corrective pattern after the directional pattern, which is Wave 2 or the second wave of the overall pattern. This is where it gets a little bit tricky. When you are using Elliott Wave or the Elliott Wave Principle to analyze the markets, you have to remember that the rules that apply for the overall design also apply for the designs or the patterns within the waves of the overall design.

So let’s continue. Right here, we have another five-wave pattern inside the third wave of the design. We have another A-B-C corrective move that gives us the fourth wave of the design and another five-wave impulse to finish the overall five-wave pattern of the design that we are looking at. So we have single, smaller patterns within each wave of the overall design. Then the directional move ends at the end of the fifth wave of the overall design and of course the fifth wave of the smaller design inside the fifth wave. Then we are going to go and count the waves of the corrective move of the overall design.

The first wave is going to have a five-wave pattern to the downside. Why is it going to have a five-wave pattern to the downside? Because it’s a directional move. Now this is where it gets a little bit more tricky, but it’s very easy to understand. Even though we are in a corrective A-B-C pattern, the first wave or the A wave is going to have a five pattern inside of it. Why? Because this is a counter-trend move and the direction of this move is on the opposite side of the overall trend. So this is actually a directional move of the three-wave correctional pattern.

So we need a five-wave pattern inside the first wave, then we need a three-wave pattern or corrective move, an A-B-C, to give us the B wave of the overall three-wave corrective move and then we have the C wave that finishes the overall A-B-C pattern and then we can continue to trade to the upside. What’s cool about the Elliott Wave Principle is that this 1, 2, 3, 4, 5 design can also be a 1 or the first wave of an even bigger pattern. And this A-B-C pattern can be the second wave of an even bigger pattern.

Now this is just to explain that there are waves within waves. I don’t want you to go and try to find every single wave and count every single wave within the every single design that you are going to be spotting. No, that’s not what we want here. I just want you to know that you need to understand that the market moves exactly in the same way or has the same behavior in the higher timeframes than in the lower timeframes. That’s why we have waves within waves.