If previously we looked at the impulse rules, it is time to have some guidelines that should be taken into consideration every time you are looking at a potential impulsive move. I mean the rules need to be respected, but this guideline should give you, let’s say, more details and confidence, if necessary, that you are looking at an impulsive move and nothing else.
Under the impulse guidelines, the following should be considered:
- first wave can be a leading diagonal, but this is rare. I have an amendment here, in the sense that, judging by my experience, to have a leading diagonal as a first wave is not that rare when trading currency markets. For other markets it may be, but not with currencies;
- second wave is usually a zig-zag;
- second wave usually takes more than 10% of the first wave in time;
- second wave usually is higher than 30% of wave one and smaller than 80% of the same wave;
- second wave retraces more likely between fifty and 61.8% of the first wave;
- third wave length is more likely between (1.5-3.5) of wave one;
- fourth wave is rarely a zig-zag;
- fourth wave retracement should be higher than 20% of previous third wave;
- typical retracement for the fourth wave is 38.2% out of the third wave and rarely it travels beyond the 50% retracement level;
- if the third wave is 161.8% of the first wave, then the time taken for the fifth wave to form should be equal with the time taken for the first wave to form;
- targets for the fifth wave should be, in this order, 61.%, 100% and 161.8% when compared with the first wave;
- second and fourth wave should alternate in time, price, severity and complexity of the move.
Like mentioned at the beginning of this project, as simple the concept is, remember, five waves up corrected with three waves down, as complicated becomes when going into details. And this is exactly why I love this project because I can go and have recordings and guide you through the details presented above.