Elliott wave patterns in market charts, as you may know, fall into two main groups: impulses and corrections. Impulsive patterns consist of five-wave moves, while corrective ones have three internal waves, like this idealized diagram shows:
You may say – interesting, but how do I actually use this knowledge?
Here's how. Five-wave impulses (1-2-3-4-5) point IN the direction of the larger trend. Three-wave corrections (A-B-C) are just PAUSES within that trend. Once you've identified one or the other, you have a good idea of where your market may go next. Simple and effective.
The natural question you may have next is this: Which patterns should you focus on, impulses or corrections? For answers, let's turn to Jeffrey Kennedy, Elliott Wave International's Senior Commodity Analyst and editor of Daily Futures Junctures.
5 days a week, EWI's Daily Futures Junctures brings you one or more "best opportunity" in commodities' futures markets. Today's "best" are Rice and Pork Bellies (May 19). What will be tomorrow's opportunity? Subscribe risk-free to find out.
Vadim Pokhlebkin: Jeffrey, what wave patterns do you spend most of your time on: impulses or corrections?
Jeffrey Kennedy: My answer would be, corrections. Some of our readers might find this puzzling, because impulse waves take prices far in a short period of time. Conversely, prices take a long time to travel a short distance when a corrective wave is in force. So, impulses seem better suited for helping you achieve your goals, faster. Still, I prefer corrective waves – because they SET THE STAGE for impulse waves.
VP: What do you mean by that?
JK: Well, let's take Rice futures, for example. Right now, rice charts show three waves down (A-B-C) from the recent 25.070 peak. Three waves automatically means "correction." That alone argues that once this move is complete, it will be more than fully retraced. In tonight's Daily Futures Junctures (May 19, online now – Ed.), I also list other reasons why this will most likely be the case.
VP: So, corrections help you identify upcoming opportunities?
JK: Exactly. Impulses are powerful moves; you especially don't want to miss third waves. But before every third wave – which itself has an impulsive internal wave structure, by the way – comes a second wave, a correction. Once you've properly identified the correction, the "ride" – that is, the impulse – will take care of itself. By the way, I'm tracking another likely correction right now, in Pork Bellies. My readers will find the details in tonight's Daily Futures Junctures.
VP: Thank you, Jeffrey.