Wave 3 Extension (Bearish) / Extension (Wave 3, Bearish)
General reference values based on Elliott Wave Theory. Actual success rates vary significantly depending on market conditions, timeframe, and instrument.
A bearish impulse pattern in Elliott Wave Theory where Wave 3 extends dramatically to the downside. Wave 3 typically extends to 1.618-2.618 times the length of Wave 1, accompanied by heavy volume as the most powerful declining wave. This provides the most profitable short position in bear markets, where institutional selling pressure concentrates. The cardinal rule that Wave 3 can never be the shortest impulse wave applies equally to bearish impulses. Often accompanied by panic selling and fundamental deterioration, characterized by rapid price declines.
Confirm the completion of Wave 2's rally and enter short at the start of Wave 3's decline. When Wave 2 retraces 0.5-0.786 of Wave 1 and bearish reversal candlestick patterns (evening star, bearish engulfing, etc.) or oscillator reversals are confirmed, enter short. Additional short entries when Wave 3 reaches 1.0 times Wave 1 are also effective. If Wave 1's starting point is breached upward, the wave count is invalid.
Wave 3 target: apply 1.618 times Wave 1's range downward from Wave 2's endpoint. For further extensions, 2.618 times is the next target. Wave 5 target: apply approximately Wave 1's distance downward from Wave 4's endpoint. Overall impulse target: 3.236-4.236 times Wave 1's decline range.
When entering at Wave 2 completion, place a stop-loss slightly above Wave 1's starting point (the declining start). For mid-Wave 3 entries, place above the most recent rally high.
Wave 3 typically has the highest volume. Selling volume increases at Wave 1, decreases at Wave 2, and surges at Wave 3. The middle portion of Wave 3 (gap-accompanied sharp decline) usually sees maximum volume. If Wave 5 volume is lower than Wave 3, this divergence signal suggests the downtrend is nearing completion.