medium · Elliott Wave Theory motive
In a bearish 5-wave impulse (downtrend), Wave 1 drops from 200 to 165. Wave 2 rallies to 188. Wave 3 drops to 115. Wave 4 then rallies to 140.
Is this a valid bearish impulse?
- Wave extensions occur in both bull and bear markets alike; a third-wave extension is one of the most common patterns in strong downtrends.
- Overlap in a downtrend needs the Wave 4 high above the Wave 1 low; since 140 stays below 165, no overlap occurs here.
- Yes, all rules are satisfied: Wave 2 does not exceed the origin, Wave 3 is not the shortest, and Wave 4 does not overlap Wave 1.
- Deep Wave 2 retracements near 61.8%-65.7% are common relief rallies seen in strong bear markets and violate no Elliott Wave rule at all.
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