Wave 3 Extension / Extension (Wave 3)
General reference values based on Elliott Wave Theory. Actual success rates vary significantly depending on market conditions, timeframe, and instrument.
The most common form of extension in Elliott Wave Theory, where Wave 3 extends dramatically longer than Waves 1 and 5. Wave 3 typically extends to 1.618-2.618 times the length of Wave 1, accompanied by heavy volume as the most powerful impulse wave. This is the most profitable wave for trading, where institutional positioning concentrates. A cardinal rule of Elliott Wave Theory states that Wave 3 can never be the shortest impulse wave.
Confirm the completion of Wave 2 and enter long at the start of Wave 3. When Wave 2 retraces 0.5-0.786 of Wave 1 and reversal candlestick patterns or oscillator reversals are confirmed, enter long. Additional entries when Wave 3 reaches 1.0 times Wave 1 are also effective. If Wave 1's starting point is breached, the wave count is invalid.
Wave 3 target: add 1.618 times Wave 1's range to Wave 2's endpoint. For further extensions, 2.618 times is the next target. Wave 5 target: add approximately Wave 1's distance from Wave 4's endpoint. Overall impulse target: 3.236-4.236 times Wave 1's range.
When entering at Wave 2 completion, place a stop-loss slightly below Wave 1's starting point (Wave 2 must not breach Wave 1's origin). For mid-Wave 3 entries, place below the most recent low.
Wave 3 typically has the highest volume. Volume increases at Wave 1, decreases at Wave 2, and surges at Wave 3. The middle portion of Wave 3 (gap-accompanied acceleration) usually sees maximum volume. If Wave 5 volume is lower than Wave 3, this is a divergence signal.