We have learned the six basic wave patterns in the previous article. This is the basic patterns, and this time with some labels:

At the end of the previous article, I asked you to count to the turning points of each wave patterns, and you probably noticed both of two motive wave patterns have 4 turning points, making 5 legs before completing the pattern. The corrective patterns’s turning points vary from 2 to many depending on the wave patterns.

In order to communicate where within a pattern we are referring to, we put the labels like in the above image to each wave patterns. Here is how labeling goes:

- We do not put a label for the starting point.
- For motive wave, we put numerical labels: 1, 2, 3, 4, and 5. Label 5 is at the end of the wave pattern.
- For corrective wave, we put alphabetical labels.
- Within corrective waves, zigzag, flat, and triangle wave patterns begin the labeling with A, followed by B, C….
- The complex wave that has an irregular labeling system W, X, Y(, X, Z). I will explain the details of complex wave labeling system in a later article.

I hope this is not too complicated.

Probably, you may have encountered labeled charts from practitioners of Elliott wave principle in the past.

And now you just started to realize know why and how they are labeled. We started to talk in the same language.

Just one more about wave notation. I wrote that motive waves, for example, have 5 “legs”. But we do not use the term legs, but we say wave. Just as “an impulse wave has 5 waves.”

Yes, it’s a bit confusing, but it’s waves within a wave pattern. To refer which wave within a wave pattern, we use notation of (wave 1, wave 2, wave 3…) just like this:

- For motive wave, wave 1 is the wave between the starting point and label 1, wave 2 is between label 1 and 2, wave 3 is between label 2 and 3, wave 4 is between label 3 and 4, and wave 5 is between label 4 and 5.
- For corrective, wave A is between the starting point and label A, and so on.

That is it. Now I can communicate the geography is Elliott waves more precisely!

Now I hope you are curious, and I will explain why each legs are actually called waves. Well, it’s not just the matter of how you call it, but those legs are indeed waves.

Remember I showed you the image of the connected wave patters? I did not randomly connected the wave patterns when I made it. Take a look the image of the connection of wave:

If you had observed carefully enough, you must have noticed that this connection of the small waves are forming a bigger (motive) wave! So, each of “legs” in this bigger wave is not a straight line if you look the details. They are consisted with smaller waves. So legs are indeed waves.

Instead of going to the macro view, just imagine you are using a microscope to observe the sub-structure of the small waves. As you would expect, it has even tinier wave structures within.

You can go either bigger or smaller world for almost forever. It’s just like Russian stacking dolls, isn’t it? Or you may call it fractal (though it’s not precisely so mathematically speaking).

Finally, let’s look at the real life examples.

(I only had bear market examples now, I will update this section later with more examples.)

The first example is a 3 hour chart taken at the market close of AUDUSD on December 25, 2009.

Which of the 6 wave patterns does it remind you of? (hint: Remember the siblings? It’s a bear market, going downwards.)

It’s an impulse wave if you count the blue underlined i, ii, iii, iv, and v. Also you may have noticed that it has an impulse wave structure within waves i and iii as I labeled with purple letters.

Wave blue underlined ii instead has upward zigzag as I labeled purple a, b, and c.

Let’s go to the next chart. This a shorter interval example: EURUSD 15 minutes chart.

First look at my idealized illustration of the downward impulse wave on the left top corner. Focus inside the black box.

Then, look at the EURUSD chart. Wow, they look alike!

Also observe what kind of wave patterns are present.

Lastly, here is a good news: those wave patterns are not randomly chosen and connected one after another. There is strict and clear RULES or less strict GUIDELINES in making the sequence of the wave patterns.

Why is it a good news? Because once you locate the bigger structure in a long term chart (daily, weekly, monthly, or even yearly!), you can anticipate the sequence of wave patterns in the substructure of the big wave.

If you know what kind of wave is coming next and you know their shape very well, you have the better idea when to buy and sell profitably!

How exciting is it?

OK, I stop here. Before proceeding to the next article. Please try this:

- Open a daily or hourly price charts of your choice, and try to look for a structure that resembles an impulse wave.
- Once locate an impulse wave, redisplay the chart with shorter period to see the details
- Can you find substructure of the waves within the impulse wave?
- What kind of wave pattern can you see within the impulse wave?
- Is there any rules or patterns in the connection that you can observe?

From the next article, I am going to visit each wave patterns to describe their anatomy in details. I will also focus on giving an actionable trading ideas with in the wave pattern.