Extension
An extension occurs when one of the three motive waves (1, 3, or 5) within an impulse stretches into an elongated move with clearly visible subdivisions. The extended wave is noticeably longer than the other two motive waves, typically reaching 161.8% or more of the next longest wave. In stock markets, Wave 3 extensions are by far the most common. This is where the big money gets made as the trend becomes obvious and institutions pile in. In commodity markets, Wave 5 extensions are more typical, driven by speculative blow-off moves. Wave 1 extensions are rare but do occur. When you identify which wave is extending, it changes your trading approach. During a Wave 3 extension, you stay aggressively long because there's still a Wave 5 to come. During a Wave 5 extension, you tighten your stops because the trend is in its final stage. Only one wave in an impulse typically extends, so if Wave 3 was normal length, watch for Wave 5 to extend. The subdivisions within the extended wave are visible at the same degree, meaning you can count a full five-wave impulse inside the extended wave without changing timeframes.
In a five-wave impulse on the S&P 500, Wave 1 covers 200 points and Wave 5 covers 180 points. Wave 3, however, runs 450 points with five clearly visible sub-waves on the daily chart. That's a Wave 3 extension at 225% of Wave 1. The extended wave is where the majority of the impulse's price distance occurs.