USD/CHF is showing some nice sharp downside price action after a recent sharp fall to the 0.9100 area, which appears to be wave three of three of an impulsive structure. If that's the case, then we know that market will move even lower in sessions ahead, but after a completed fourth wave pull-back that is now in progress. Ideally the pair will test the 0.9150 area before the downtrend resumes. Generally speaking, the trend is clearly bearish on the 4h time frame posted below, and it will stay down as long as the 0.9228 level is not breached because we know that wave four must not trade into temerity of a wave one.
Impulse is the most common motive wave.
• wave 1 must be an impulse or a leading diagonal
• wave 2 can be any corrective pattern except a triangle
• wave 2 must not retrace more than 100% of wave 1
• wave 3 must be an Impulse.
• wave 3 must be longer than wave 2
• wave 4 can be any corrective pattern (zig-zag, double or triple zig-zag, triangle, flat, double or triple three)
• waves 4 must not trade into a territory of a wave 1
• wave 5 must be an impulse or an ending diagonal
• wave 3 must never be the shortest wave when compared to waves 1 and 5.
Most impulses contain what Elliott called an extension. An extension is an elongated impulse with exaggerated subdivisions. The vast majority of impulses contain an extension in one and only one of their three actionary subwaves.
The fact that extensions typically occurs in only one actionary subwave provides a useful guide to the expected lengths of upcoming waves. For instance, if the first and third waves are about equal length, the fifth wave will likely be a protracted surge. Conversely, if wave three extends, the fifth should be simply constructed and resemble wave one. In the market, the most commonly extended wave is wave 3.