In our previous post, we discussed the fifth wave and its importance in the Elliott Wave Theory. In this educational post, we’ll review the second key concept in motive waves.
The extension concept
The extension, as its name says, is a complete impulsive movement inside a motive wave. The extension is a market phenomenon which appears in any one impulsive waves. Elliott commented that in rare cases the extension appears in more than one motive wave, and generally occurs in wave 5. The following chart shows the basic extension structure.
The reader must consider that this sequence includes nine waves and occurs in the territory of the current cycle.
The extensions of extension
A second case happens when an extension has an extension. If we observe the internal formation in the extension of the extension, we can note that this sequence includes 13 waves. The following chart shows the different types of extensions.
For simplification purposes, we omitted the internal structure of the second expansion.
Final words from R.N. Elliott
Elliott considers it essential to learn about expansions saying:
Losses can be avoided and profits obtained by learning the behaviour of the market after their occurrence.
Also, Elliott left us some rules of extensions:
- Extensions happen in a new territory of the current cycle.
- Extensions retrace two times if it occurs in the fifth wave.
- The first retracement is in three waves. the second retracement follows the principal market direction.