Wave 1
Wave 1 is the first impulse wave in a new five-wave sequence. It is the hardest wave to identify in real time because it emerges from the tail end of a prior correction when sentiment is still bearish. Most traders miss Wave 1 entirely. They either think the downtrend is continuing or they are too scared to buy. Wave 1 subdivides into five smaller waves and establishes the new trend direction. Volume often starts low and picks up toward the end of the wave. The wave tends to be shorter than Wave 3 and sometimes shorter than Wave 5. You can spot Wave 1 by looking for a five-wave advance off a significant low when momentum indicators start turning positive from deeply oversold levels. The confirmation comes when Wave 2 corrects but holds above Wave 1's starting point. Wave 1 is about courage. The chart looks terrible, news is bad, but the structure says a new trend is born.
After a prolonged bear market, Apple bottoms at $120. Wave 1 rallies to $140 over three weeks, subdividing into five smaller waves on the 4-hour chart. Most analysts are still calling for $100. Volume picks up from Wave sub-3 onward. The MACD crosses above zero for the first time in months. Wave 2 then corrects to $128, retracing 60% of Wave 1 but holding well above $120. The trader who bought at $130 during Wave 1, recognizing the five-wave structure, now has confirmation and adds to the position at $128.