Ralph Elliott: The Impulsive Personality of Wave 3: A Deep Dive

1. The Psychology of Wave 3

Wave 3 is the point of recognition. The broader market realizes that a new trend is underway, and everyone rushes to get in. This creates a effective, self-reinforcing feedback loop of buying pressure.

2. Characteristics of Wave 3

• Length: Almost always the longest of the impulse waves.
• Volume: High and rising volume is a hallmark of Wave 3.
• Gaps: Breakaway gaps are common at the beginning of Wave 3.
• Extensions: Wave 3 is the most likely wave to extend.

3. How to Trade Wave 3

• Entry: The classic entry is on a breakout above the Wave 1 high.
• Stops: Place your stop below the Wave 2 low.
• Targets: Use Fibonacci extensions to project profit targets.

4. The Dangers of Misidentification

Misidentifying a C wave of a correction as a Wave 3 can be a costly mistake. Always look for the tell-tale signs of a genuine Wave 3, such as strong volume and a clear five-wave internal structure.