Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30 years of stock market experience and widely regarded as a leading expert on chart patterns. His four books, including the best selling Encyclopedia of Chart Patterns, have been translated into seven languages. He may be reached at

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Bulkowski's Wave Three Extension

Market

Industrials (^DJI):

Transports (^DJT):

Utilities (^DJU):

Nasdaq (^IXIC):

S&P 500 (^GSPC):

As of 02/07/2012

12,878 33.07 0.3%

5,323 -10.92 -0.2%

452 2.11 0.5%

2,904 2.09 0.1%

1,347 2.72 0.2%

YTD

5.4%

6.0%

-2.7%

11.5%

7.1%

Tom's Targets Overview: 02/03/2012

13,100 or 12,400 by 02/15/2012

5,500 or 5,150 by 02/15/2012

470 or 440 by 02/15/2012

3,100 or 2,800 by 02/15/2012

1,375 or 1,300 by 02/15/2012

Test Portfolios and CPI

Indus. strength: 2.4%

Mutt Losers: None YTD

Mutt Winners: 2.5%

Wilder RSI: None YTD

CPI:

on 12/20/2011

This page describes the wave three extension pattern of the Elliott wave principle, how price moves not in a straight line but in a series of rises and retracements.

The wave three extension in a bull market. The figure to the right shows what a wave three (third wave) extension looks like in a bull market. An extension is an unusually long impulse wave with exaggerated subwaves, according to Frost and Prechter. Many impulses contain only one extension in their actionary subwaves. That is, only one of the waves one, three, or five, will be extended. When an extension occurs, it will likely occur during wave three. The subwaves within an extension have nearly the same duration and amplitude as the ones in the rest of the wave. That means if wave three is extended, then the subwaves in wave three will resemble the subwaves in waves one and five.

Four subwaves join wave three to total five subwaves and complete the extension. I show wave three of higher degree as a red line and subwaves in black. Knowing that wave three extends suggests waves one and five will be normal length.

The wave three extension in a bear market. The chart on the right is the same as the prior one, but the wave occurs in a bear market. The extended wave three appears in red (shown this way to highlight the wave length), but it really is composed of the black subwaves.

An extension can occur within an extension. For example, if wave three is extended, then subwave three within wave three can be extended. Thus, wave three will have nine subwaves instead of five.

Wave Three Extension Rules

The wave three extension has rules that govern its shape. They are listed here.

The wave three extension is a motive wave composed of nine sub waves, each appearing similar in shape and duration.
If an extension occurs on wave three, then waves one and five will be normal waves, not extensions.
Most impulse waves contain extensions (either wave one, three, or five will be extended).
An extension can, itself, be extended (an extension within an extension).
Wave three is the most commonly extended wave.
Wave four cannot overlap wave one.
Wave three is never the shortest wave.

-- Thomas Bulkowski

Bulkowski's Wave Three Extension

Wave Three Extension Rules

See Also