The character of each Elliott wave — news, volume, crowd psychology

Core idea

Every wave in the 5-3 cycle has its own portrait made of four traits: the news being released, trading volume, the crowd's psychological state, and its typical Fibonacci depth. Recognizing a wave by its portrait is far more reliable than recognizing it by counting — because anyone can bend a count to suit themselves, but volume and news can't be bent.

Details

The portrait table

The two most valuable volume rules in the table above

Pulled out separately because this part is verifiable, and doesn't depend on the count:

1. A corrective wave always has lower volume than the impulse wave right before it. True for 2 (versus 1) and 4 (versus 3). If a countertrend leg has volume that is not lower, it's not an ordinary correction.
2. The test that tells a "shallow correction" apart from a "real reversal": compare the volume of the first down-leg with the volume of wave 5.
   • Volume lower than wave 5 → more likely just a correction leg.
   • Volume higher than wave 5 → this is wave A of a real downtrend, not a place to buy more.

Rule 2 is the thing that saves you from the most expensive trap at the top of a cycle, because at wave A the news is still good and price is still close to the top — everything still looks like a buying opportunity.

News is a tool, not a cause

The trait that repeats across the whole table: bad news comes out at the bottom, good news comes out at the top — the exact opposite of a beginner's intuition. How the teacher explains it: news gets released at the right phase to serve accumulation and distribution, so news accompanies the wave rather than causing it.

Careful: A limit to keep in mind: this is a descriptive observation, and must not be reverse-engineered into a forecasting tool of the kind "see good news, sell." See News & the market (narrative, good/bad news, capital flow) — there the teacher himself admits there's no airtight logical answer for exactly when news gets released.

The three most memorable portraits

• Wave 1 — "tons of bad news but price just keeps quietly grinding up." This is the earliest sign, and also the hardest to act on, because at that point every argument tells you to stay out.
• Wave 5 — the sign is off the chart. The teacher uses the image of people around you starting to show off newly bought assets, and then you pile in too. The point worth keeping isn't the image, but this: at wave 5, the strongest signal sits outside the chart, in who's talking about the market.
• Wave A — the most polite trap. Price drops hard while the news is still good and the crowd still calls for higher targets. The teacher tells the story of BTC in January 2018: price had already come back down to the 14–15k zone, and people were still calling for 23–30k.

A recorded exception

Crypto 2017: wave 5 was actually the strongest wave, not wave 3. The reason the teacher gives is that the crypto market is small enough for large money flows to steer it, so the deviation from theory is far bigger than in forex and stocks. ⇒ The table above is a probability, not a mold.

Putting it into practice

1. Before naming a wave, check all four traits: what news is coming out · how volume compares with the previous leg · what people around you are saying · where the depth of the correction leg sits.
2. Whichever trait contradicts your count, trust that trait — don't trust the count.
3. Run the wave-A volume test every time a down-leg shows up after a long rally. This takes 10 seconds and avoids a very large category of loss.
4. At wave 5: reduce your size, keep the stop always armed, and accept that you won't sell the top.

What the teacher stresses / common traps

• A common trap: using this table to forecast ("we're in wave 4, so wave 5 is coming, buy now"). The table is for recognizing the current situation, not for placing orders ahead of time.
• Beginners tend to skip volume because it isn't as "pretty" as the price line. But volume is the only trait in the table you can't bend to your own liking.
• The teacher bluntly criticizes calling out price targets when volume already says the opposite — he considers that a sign the speaker isn't actually observing.

Related lessons

• Volume & the DXY index — volume from the macro angle; the two volume rules in this note supplement that note
• Psychological developments on the chart — why you still make mistakes even with the knowledge — the chain of emotions that tracks the price line
• News & the market (narrative, good/bad news, capital flow) — the limits of reading the news; read alongside this so you don't turn this table into a forecast
• The 4 psychological stages & how to survive a dull market — individual psychology, placed alongside the crowd psychology here