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Fibonacci applications and strategies for traders Chapter 5

Chapter 5 Working with Extensions. Extensions are exuberant prive movement. They express themselves in run- away markets, opening gaps, limit up and limit down moves and high volatility | 5 Working with Extensions Extensions are exuberant price movements. They express themselves in run-away markets opening gaps limit up and limit down moves and high volatility. These situations can offer good trading potential if the analysis is carried out in accordance with sensible and definitive rules. Elliott noted Extensions may appear in any one of the 3 impulse waves but in never more than one p. 55 . This is shown in Figures 5-1 and 5-2. a b c Figure 5-1 a Extension in wave in uptrend b extension in wave 3 in uptrend c extension in wave 5 in uptrend. 73 74 WORKING WITH EXTENSIONS 5 5 5 a bl c Figure 5-2 a Extension in wave 1 in downtrend b extension in wave 3 in downtrend c extension in wave 5 in downtrend. On rare occasions there are a total of 9 waves all of almost equal size Elliott p. 55 . This is shown in Figure 5-3. To fine-tune his strategy Elliott added Extensions are double retraced that is a correction will pass over the same ground twice. If the extension occurs in wave 3 double correction will take care of wave 4 and wave 5 p. 55 see Figure 5-4 . The correction after a fifth wave extension has already been discussed in Chapter 4. Figure 5-5 shows the fifth wave correction. Figure 5-3 downtrend. a 9 Waves of equal size in uptrend b 9 waves of equal size tn WORKING WITH EXTENSIONS 75 Figure 5-4 Ratio 1.618 used with the amplitude of wave 1 to calculate the price band for the end of wave 5. Figure 5-5 Ratio 1.618 is used to calculate the price band for wave 5 with the amplitude of wave 1. Ratio 0.618 is used to calculate the price band for wave 5 with the amplitude of wave 3. 76 WORKING WITH EXTENSIONS Elliott performed a great service by identifying extensions and putting them in perspective with respect to the wave count. But in doing so there is a complete change in his strategy. Elliott claims that by mastering his concept we can forecast price moves in advance. Even though the observation of the extensions as a chart pattern is brilliant it is