The impulse: five waves and three hard rules
Short version for experts: tables, lists and screenshots only.
Words in this lesson (4)
The idea in one paragraph
The price doesn't move in a straight line but like a staircase: a step with the trend, a pullback, another step. Ralph Elliott noticed that this staircase has a repeating pattern: a move with the trend consists of five waves, and a pullback against it — of three. And this holds at any scale: inside every wave are similar smaller waves.
Wave analysis is a map: it shows where in the structure we are and what, by the rules, should happen next. It's not a prediction but a set of scenarios with an exact invalidation price.
The impulse: five waves
Picture a staircase going up:
- Wave 1 — the first step. Nobody believes in it yet.
- Wave 2 — a pullback. It can't go below the start of wave 1.
- Wave 3 — the strongest and longest step. This is where everyone sees the trend.
- Wave 4 — a calmer pullback.
- Wave 5 — the last step, often on fading volume.
Waves 1, 3 and 5 go with the trend, 2 and 4 against it.
Three hard rules
If even one is broken, the count is wrong and must be thrown out.
- Wave 2 never goes beyond the start of wave 1.
- Wave 3 is never the shortest of waves 1, 3 and 5.
- Wave 4 never enters the territory of wave 1 (doesn't touch its peak).
It's these rules that give you what most methods lack: the exact price where you're wrong.
The second rule has a useful consequence: if wave 3 came out shorter than wave 1, wave 5 will be shorter than wave 3. So the fifth wave has a ceiling, and there will be no extension. MAMAY trims the fifth wave's targets to this ceiling by itself and notes it in the scenario.
Hierarchy: higher degree is bigger than lower
Waves of a higher degree are almost always bigger than waves of a lower degree: the higher-degree wave 4 is bigger than any correction inside the fifth, the higher-degree wave 2 is bigger than the corrections inside the third. If in your count a lower-degree correction came out bigger than a higher-degree one, that's a "first warning bell": it happens, but rarely, and the option is worth lowering in priority. That's exactly what MAMAY does — it marks it "hierarchy broken, option in doubt".
What waves are made of
- Wave 3 is always an impulse (itself made of five smaller waves).
- Wave 2 is most often a zigzag (a sharp pullback) and is never a triangle.
- Wave 4 is most often a flat correction or a triangle.
The rule of alternation: if wave 2 was deep and sharp, wave 4 is more likely to be shallow and drawn out — and vice versa.
The main practical idea
When you see five completed waves up on the chart, it's too late to buy: a correction lies ahead. Beginners buy precisely in the fifth wave, because the trend looks most obvious there.
The second practical idea: five waves against the previous trend are wave A or wave 1 of a new move. So the move in that direction isn't over — after a pullback there will be another leg.
Where to enter on waves
| Place | Why |
|---|---|
| The end of wave 2 | the strongest wave 3 lies ahead; the stop is close — beyond the start of wave 1 |
| The end of wave 4 | wave 5 lies ahead; the stop — beyond the peak of wave 1 |
| The end of a correction after five waves | the start of a new impulse |