Extended Waves

What an extension looks like

In an extended wave, the five smaller waves inside it are so large that the whole impulse can look like nine waves instead of five. For example, if wave 3 is extended, its sub-waves (i), (ii), (iii), (iv) and (v) are all clearly visible and similar in size to waves 1, 2, 4 and 5.

Which wave extends?

• Wave 3: the most common in stock indices and currencies. It often reaches 161.8% or 261.8% of wave 1.
• Wave 5: common in commodities and crypto, where late stage speculation can drive the final wave very far.
• Wave 1: the least common. If wave 1 is extended, waves 3 and 5 tend to be shorter.

Useful guideline: only one extension

Usually only one of the three motive waves extends. If waves 1 and 3 are about equal in length, wave 5 is likely to extend. If wave 3 is extended, waves 1 and 5 often tend toward equality in size.

What happens after an extension

When wave 5 is extended, the correction that follows often retraces sharply back to the area of wave (ii) inside the extension. This is called a double retracement and is common after blow-off moves.

Trading tips

• Do not exit too early in an extended wave 3. Trail your stop below the previous smaller wave (iv).
• Watch for wave (v) of 3 to show momentum loss before expecting wave 4.
• In crypto and commodities, keep an extended wave 5 in mind when waves 1 and 3 are similar in size.