Rules for Impulse Waves

Firstly, let us start with the Rules of Impulse Waves.

What are the various rules and guidelines to identify Impulse Patterns?

Impulse Pattern

An Impulse Pattern is composed of 5 waves. It has 3 impulse waves which are labelled as 1, 3 & 5 and two corrective waves which are labelled as 2 & 4.

Rules of Impulse Pattern 

An impulse pattern must obey all the rules given below. If any of the rules given below are not obeyed then the pattern is by default corrective. 

Rule 1: Wave 2 should never retrace all of Wave 1

Rule 2: Wave 3 will always go above the high of Wave 1

Rule 3: Wave 3 is never the shortest wave out of Wave 1, Wave 3 and Wave 5.

Rule 4: Wave 4 should not come into the territory of Wave 1

Rule 5: Wave 5 should be at least 38.2% of wave 4

Rule 6: One wave must be extended out of Wave 1, wave 3 and wave 5. (An extension is the longest wave in an impulse wave)

Rule 7: Rule of alteration. This rule applies to wave 2 and wave 4 of an impulse pattern.

The alteration can be with respect to Price, Time, Subdivision or Type of pattern.

Let us understand the rule of alteration. 

Price: Wave 2 and Wave 4 should alternate with respect to the percentage retracement of the preceding wave. In the below diagram we see Wave 2 showing more retracement than wave 4

Time: Wave 2 and Wave 4 should alternate with respect to the time taken for their formation i.e the distance covered in the horizontal unites. In the below diagram we see Wave 4 taking more time than Wave 2

Sub Divisions: Wave 2 and Wave 4 should alternate with respect to the presence of subdivision in the below diagram we see a subdivided Wave 2. Wave 4 is not subdivided. 

Type of pattern: Wave 2 and Wave 4 should alternate with respect to the corrective pattern. In the below diagram we see Wave 2 showing a zig-zag corrective pattern and Wave 4 showing a triangle corrective pattern.

The image shows the Impulse pattern formation in the daily time frame charts of Nifty 50

Here we can see the pattern adhering to all the rules of impulse patterns  

• Rule 1: Wave 2 is not retracing the whole Wave 1
• Rule 2: Wave 3 is above wave 1
• Rule 3: Wave 1 is the shortest wave of all the major waves 
• Rule 4: Wave 4 is not coming in the territory of Wave 1
• Rule 5: wave 5 is more than 38.2% 
• Rule 6: Wave 5 is the extended wave of all the impulse wave 
• Rule 7: Wave 2 and Wave 4 are obeying the rule of alteration (price, time and pattern alteration)