Counting waves in stock trading

Counting waves in stock trading typically refers to Elliott Wave Theory, a popular form of technical analysis that attempts to forecast market movements by identifying recurring price patterns driven by investor psychology.

Basic Elliott Wave Structure

Elliott Wave Theory identifies two main phases in market movement:

1. Impulse Waves (trending market)

• Move in the direction of the overall trend.

• Consist of 5 waves:

  • Wave 1: Price begins to rise.

  • Wave 2: Price pulls back (but doesn’t go below the start of Wave 1).

  • Wave 3: The strongest and longest upward wave.

  • Wave 4: Another pullback (shallower than Wave 2).

  • Wave 5: Final push up, often showing signs of weakening momentum.

2. Corrective Waves (counter-trend)

• Move against the trend.

• Consist of 3 waves:

  • Wave A: Initial drop.

  • Wave B: Partial retracement upward.

  • Wave C: Final drop, usually equaling or exceeding Wave A.

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How to Count the Waves

Here’s a basic process:

1. Start with a clean chart – Use a daily or weekly chart to see the big picture.

2. Identify the trend – Look for a major uptrend or downtrend.

3. Look for the 5-wave impulse pattern – Try to spot the five distinct moves.

4. Use Fibonacci retracement and extensions:

   • Wave 2 usually retraces 50–61.8% of Wave 1.

   • Wave 3 is often 1.618 times the length of Wave 1.

   • Wave 4 usually retraces 38.2% of Wave 3.

   • Wave 5 can be equal to Wave 1 or 0.618 of Wave 1-3.

5. Label waves as you go – Use 1–5 for impulse waves and A–C for corrective waves.

6. Confirm using volume and momentum indicators – Momentum often peaks at Wave 3, and divergence often appears in Wave 5.

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? Tools You Can Use

• Charting Platforms like TradingView, MetaTrader, Thinkorswim

• Elliott Wave indicators/plugins

• Fibonacci tools (retracement/extension)

• RSI and MACD to spot divergences in Wave 5

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? Tips & Cautions

• Wave counting is subjective and requires practice.

• Always combine with other technical tools—don’t rely solely on wave counts.

• Patterns don’t always play out exactly; markets can be messy or irregular.

Would you like a real example chart or a breakdown of a specific stock’s wave count?

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Here’s a practical guide to help you count Elliott Waves effectively, with theory, rules, tools, and real chart application:

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1. Core Structure: Impulse vs. Corrective

• Impulse waves consist of 5 waves trending in the main direction (1–2–3–4–5), while corrective waves counter-trend in a 3-wave pattern (A–B–C) Reddit+15Tradesynthetic+15itradeaims.net+15Elliott Wave International+3Investopedia+3Tradesynthetic+3.

• This pattern repeats fractally: small 5-3 cycles form larger wave degrees Wikipedia+1Investopedia+1.

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2. Three Unbreakable Rules

To ensure your wave count is valid, always check:

1. Wave 2 must not retrace below the start of Wave 1.

2. Wave 3 cannot be the shortest among Waves?1,?3,?5.

3. Wave?4 must not overlap Wave?1’s price zone (except in diagonals) howitmoves.comTraders Union+6forexrecon.com+6howitmoves.com+6.

If any rule is violated, your count is invalid — restart from a different pivot.

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3. Helpful Guidelines (Not Mandatory, But Useful)

• Wave 3 is usually the longest and strongest.

• Wave?2 and 4 alternate in structure; if one is sharp, the other is typically sideways.

• Fibonacci relationships often appear:

  • Wave 2 retraces ~38–61.8% of Wave 1.

  • Wave 4 retraces ~23.6–38.2% of Wave 3.

  • Wave 5 often equals Wave 1 in extensions docs.motivewave.com+9howitmoves.com+9Tradesynthetic+9Tradesynthetic.

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4. Quick Wave Recognition Shortcut

Count subdivisions:

• Impulse waves subdivide into 5 waves, or 9, or 13 (5 + multiples of 4).

• Corrections subdivide into 3, or 7, or 11 (3 + multiples of 4), unless they form a triangle howitmoves.com+6Elliott Wave International+6Reddit+6.

If a move has 5 waves, it’s likely an impulse; if 3 (or 7, 11), likely corrective.

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5. ? Tools & Indicators to Confirm

• Elliott Wave Oscillator (EWO): confirms impulse wave momentum—Wave 3 typically has highest peak, and divergence on Wave 5 suggests reversal Elliott Wave International+1Investopedia+1Elliott Wave International+10Traders Union+10forexrecon.com+10.

• RSI/MACD: watch for overbought/oversold and divergence at key wave pivots Reddit+15Traders Union+15Tradesynthetic+15.

• Volume: high during Wave 3, lower in corrective waves forexrecon.com+3Traders Union+3Tradesynthetic+3.

• Fibonacci retracements: great for gauging where Waves 2 and 4 may end Traders Union.

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6. Practical Wave Construction

Step-by-step:

1. Start with a clean chart—no indicators—and identify the major trend using higher timeframes howitmoves.com+4Traders Union+4Wikipedia+4.

2. Spot the first impulse wave by locating a swing that fits Wave 1–2–3–4–5 structure.

3. Label as you go, checking rules at each step.

4. Apply Fibonacci tools to refine wave endpoints.

5. Use volume and oscillators to confirm Wave 3 (largest impulse) and identify Wave 5 exhaustion.

6. If rule violations appear, switch to alternative counts—always have 1–2 backup scenarios with invalidation points Traders Union+4Alchemy Markets+4Tradesynthetic+4Traders Unionhowitmoves.com+1Alchemy Markets+1.

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7. Video Walkthrough

Here’s a great video showing Impulse & Diagonal rules and guidelines:

Elliot Wave Theory Tutorial – Part 3 (Impulse & Diagonal Rules)

From reddit:

“One of my favorite strategies is Elliot Wave Theory… there truly were no good resources… so I’m teaching it myself.” Wikipedia+13Reddit+13Reddit+13

Watching it will help you see real chart examples and thought process.

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Summary Checklist

Step	Task
1	Identify major trend & pivots
2	Label 1–5 waves, then A–B–C
3	Enforce 3 rules strictly
4	Use guidelines + Fibonacci for targets
5	Confirm with oscillator & volume tools
6	Keep alternative counts & invalidation

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Would you like to upload a chart to walk through a real wave count together? Or explore any of these tools in detail?

 

 

 

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