The first 5-wave pattern is called impulse waves.

The last 3-wave pattern is called corrective waves.

In this pattern, Waves 1, 3, and 5 are motive, meaning they go along with the overall trend, while Waves 2 and 4 are corrective.

Example of an Impulse Pattern

Let’s first take a look at the 5-wave impulse pattern. It’s easier if you see it as a picture:

That still looks kind of confusing. Let’s splash some color on this bad boy.

Ah, magnifico! It’s so pretty! We like colors, so we’ve color-coded each wave along with its wave count.

Here is a short description of what happens during each wave.

We’re going to use stocks for our example since stocks are what Mr. Elliott used but it really doesn’t matter what it is. It can easily be currencies, bonds, gold, or oil.

The important thing is the Elliott Wave Theory can also be applied to the foreign exchange market.