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Motive waves subdivide into five waves with certain characteristics and always move in the same
direction as the trend of one larger degree. They are straightforward and relatively easy to recognize
Within motive waves, wave 2 never retraces more than 100% of wave 1, and wave 4 never retraces more than 100% of wave 3. Wave 3, moreover, always travels beyond the end of wave 1. The goal of an impulse is to make progress, and these rules of formation assure that it will.
Elliott further discovered that in price terms, wave 3 is often the longest and never the shortest among
waves 1, 3 and 5. As long as wave 3 undergoes a greater percentage movement than either wave 1 or 5, this rule is satisfied. It almost always holds on an arithmetic basis as well. There are two types of motive waves: impulses and diagonal triangles.
The most common motive wave is an impulse. In an impulse, wave 4 does not enter the territory of (i.e., “overlap”) wave 1. This rule holds for all non-leveraged cash basis markets. Futures markets, with their extreme leverage, can induce
short term price extremes that would not occur in cash markets. Even so, overlapping is usually confined to daily and
intraday price fluctuations and even then is extremely rare. In addition, the actionary subwaves (1, 3 and 5) of an
impulse are themselves motive, and subwave 3 is specifically an impulse. Figures 2, 3 and 4 all depict impulses
in the 1, 3, 5, A and C wave positions.
As detailed in the preceding four paragraphs, there are only a few simple rules for interpreting impulses properly.
A rule is so called because it governs all waves to which it applies. Typical, yet not inevitable, characteristics of
waves are called guidelines, which are discussed in an upcoming section. A rule should never be disregarded.
In many years of practice with countless patterns, the authors have found but one instance above Subminuette
degree when all other rules and guidelines combined to suggest that a rule was broken. Analysts who routinely
break any of the rules detailed in this section are practicing some form of analysis other than that guided by the
Wave Principle. These rules have great practical utility in correct counting, which we will explore further in
A truncated fifth wave does not move beyond the end of the third. It can usually be verified by noting that the
presumed fifth wave contains the necessary five subwaves, as illustrated in Figures 6. Truncation gives warning
of underlying weakness or strength in the market. In application, a truncated fifth wave will often cut short an
expected target. This annoyance is counterbalanced by its clear implications for persistence in the new direction of trend.
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