of the larger degree wave 5 are each three-wavesequences, not the typical impulsive five-wave sequences,Wave four may trade into the price range of wave one.
.
Since fifth-wave-diagonal-triangles violate the Elliott wave "rules" foran impulsive wave structure, they will usually not he evident until they areeither near completion or after they have completed and the counter-trendis underway.An extended complex correction often has about the same form andstructure as a fifth-wave-diagonal-triangle. While you may consider thepossibility that a market is in a fifth-wave-diagonal-triangle, always view
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Pattern and Practical Elliott Wave Analysis
the position of the market as if It is in a complex correction and will eventually resume the trend until proven otherwise. It can be very hazardousto your trading and investing profits to try to identify a fifth-wavediagonal in advance, as many Elliott wave stock market analysts andtraders who had been calling the top of the U.S. stock market throughoutthe 1993-1994 period found out.Important trading implication of a fifth-wave-diagonal-triangleIf fifth-wave-diagonal-triangles are so difficult to identity as they areforming and are usually only evident after They have completed, why is itimportant to be aware of this market structure? The ramifications of a fifthwave diagonal triangle is that the market should have an unusually strongcorrection following the completion of the diagonal fifth wave.If a market signals that the structure is probably not a complex correction but a completed diagonal fifth wave, the trader or investor will beprepared for a deep and prolonged correction against the prior trend. Asure sign that the market structure has completed a fifth-wave-diagonal isif the market exceeds what could be labeled as the wave two of fiveextreme. At this point, the trader should have no more illusions that themarket is in a prolonged complex-correction but should recognize that alarger degree impulse trend has completed.
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Dynamic Trading - Chapter 3
Implications Of The Rules and GuidelinesFor A Five Wave Impulse SequenceIt must be kept in mind that the most important objective of Elliott-wave,pattern analysis is to understand the position of the market relative to thetrend.1. If we believe that the last swing high or low began on impulsive, fivewave trend sequence, the market cannot trade below (above) what webelieve is the beginning of wave one. If this should occur, the wavecount is incorrect, as a wave two may not exceed the beginning ofwave one.Trading ImplicationA protective stop loss should never be placed more than one tickbeyond what we consider the beginning of wave one.2. If we believe that a market is in the initial stages of a five wavesequence and has completed waves one and two and has begun wavethree, we can anticipate that wave three will be longer in price rangethan wave one. Of the three impulse waves in a five wave sequence(waves 1, 3 and 5), wave three is most often the "extended" wave. Thisis particularly true of the stock and financial markets. In commoditymarkets, wave five is as likely to be extended due to panic, weathercondition blow-offs. Wave one is rarely the extended wave.The fact that wave three is usually the extended wave allows us tomake a minimum price objective for a wave three within a five wavesequence. Wave three will usually be greater in price than wave one.A 100% Alternate Price Projection (APP) with be the minimumexpectation of wave three. Once a market exceeds the 100% APP, wehave a strong indication that a five wave sequence is underway. Thisis also called a trend confirmation.Trading ImplicationWe should not be too quick to bring a protective stop loss close to themarket prior to price reaching what we consider the minimum projection which is where wave three would equal wave one. The protectivestop loss should be adjusted closer to the market once the price range ofthe suspected wave three exceeds the price range of wave one.3. If we believe that a market has completed wave three of a five wavesequence, yet wave three is less in price than wave one, wave fivemust be less in price range than wave three which is the shorter wave
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Pattern and Practical Elliott Wave Analysis
of waves one and three. Wave three cannot be The shortest of the threeimpulse waves in a five wave sequence. In this situation, we have adefinite maximum price objective for wave five which is 100% ofthe price range of wave three, the shortest impulse wave to date.We may consider wave three is complete even if its price range isless than the price range of wave one, if wave three has completed afive wave advance. This is the only situation where we can considerwave five has a maximum price objective.Trading ImplicationThe protective stop loss of wave five should be moved very close tothe market if the price approaches the maximum objective for thiswave structure.4, If we believe that a wave three has completed and the wave four isunderway and the market trades into the price range of wave one, themarket has invalidated our count of the waves three and four as awave four may not trade into the price range of wave one. The wavecount must be re-considered.Trading ImplicationThe maximum protective stop loss on a trend trade is the wave oneextreme. However, in roost cases the stop loss would be closer to themarket. In the case of a bull market, the maximum protective stop lossis one tick below the wave one high once the wave three high is identified and the wave four decline is underway.5. The smaller degree pattern will confirm the position of the largerdegree. Waves 1, 3 and 5 should each be constructed of five wavepatterns of lesser degree. If the market violates any of the rules ofimpulse pattern within the lesser degree, it indicates that the largerdegree is not a five-wave impulse sequence as anticipated. Smallerdegree patterns are not always evident on a daily chart.Trading ImplicationIf the smaller degree patterns are evident, they are used to advantageby enabling the trader or investor to enter positions with closer initialprotective stop losses, adjusting protective stop losses closer to themarket and providing narrower time and price targets for trendconfirmation and trend termination.
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Dynamic Trading - Chapter 3
Wave Comparison NotationThroughout the time and price sections of the book, you will learn howto project the time and price ranges of prior waves forward in order todetermine at what price and time a market should reverse trend. Whencomparing one wave to another a simple notation system is used toquickly recognize what is being compared. Below are some examples.
The illustration above shows a five wave advance followed by an ABCcorrection. It has not been sub-divided into minor degree waves. Earlier inthis chapter, the wave-labeling and notation conventions used to identifywaves was described. This section will describe the notations used tocompare waves when making time and price projections.Wave RangesPrice ranges are measured by the vertical axis. Time ranges are measuredby the horizontal axis.A wave is indicated by a W.W.1 above is the distance from 0 to 1W.1-3 (waves 1 through 3) is the distance from the beginning of wave 1(labeled 0) to the end of wave 3 (labeled 3), W.1-3 does not mean thedistance from point 1 to 3, but the net range traveled of waves 1 though 3.
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Pattern and Practical Elliott Wave Analysis
W.3-5 (waves 3 through 5) is the distance from point 2 to point 5 or thedistance covered from the beginning of wave 3 (end of wave 2} through
the end of wave 5.Wave 5 is often related to both wave 1 and waves 1-3 by either equalityor one of the Fibonacci ratios. If we have identified the end of wave 4(beginning of wave 5), we can project potential time and price targets forwave 5,Examples Of Price Wave Comparison Notation642.00: W.5 = 61.8% W.1. At 642.00, the price range of wave 5 equals61.8% of the price range of wave 1.643.20: W.5 = 100% W.1. At 643.20, the price range of wave 5 equals100% of the price range of wave 1.644.10: W.5 = 61.8% W.l-3. At 644.10, the price range of wave 5 equals61-8% of the price range of waves 1 through 3.622.10: W.2 = 50% Ret. W. 1. At 622.10, wave 2 is a 50% retracement ofthe price range of wave 1.633.50: W.3 = 100% Exp. W. 1. At 633.50, the extreme of wave 3 is at a100% expansion of the price range of wave 1.Price retracements. alternate projections, and expansions are describedin detail in the Dynamic Price Analysis chapter. These same wave comparison notations are used for time projections and are described in theDynamic Time Analysis chapter.Each wave and its sub-divisions tend to have definite characteristicsthat help to identify the wave and it's position within the larger trend. Thefollowing sections describe the main characteristics and price relationshipsof each wave type, impulsive and corrective, and their sub-waves. Theprice chapter will provide the detail of how to make the price projections.For now, we just want to be aware of the wave characteristics that arereasonably consistent.
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Dynamic Trading - Chapter 3
Impulsive Waves 1, 3 and 5Their Main Characteristics and Price Ratio ProjectionsAs a market progresses, completing more and more waves, there are additional waves to make comparisons with and projections from. The earnestStages of a trend provide the least information to make price projections.The later stages provide the most information. The ultimate objective ofmaking price projections for a five wave sequence is to project the end ofwave five which is the end of the entire sequence which should then befollowed by a correction greater in tune and price than the prior correctivewaves two or four within the sequence.The following discussion of wave characteristics and price objectivesof the various impulse waves within a five wave sequence assumes that wehave identified a change in trend that we believe is the beginning of a fivewave sequence. As a market progresses, how the market acts, reacts, meetsor exceeds the various projections will help to confirm or invalidate if animpulse sequence is actually underway.The price projections described on the following pages are the internalrelationships of the waves within the five wave sequence. We must alwayskeep in mind that any wave sequence is a part of a larger degree sequence.The internal price projections of the larger degree waves will be theexternal price projections of the smaller degree waves. This will becomemore clear with examples.The price projections described on the following pages are the typicalprojections found the most often for each wave described. The most reliable price zones to anticipate support or resistance are those that are acluster of several projections as described in the Dynamic Price Analysischapter. These price projections will frequently provide us with veryreliable minimum and maximum expectations for the price objective ofthe current wave structure.Another very important factor is that the most reliable price projections will be made from more than one degree. For instance, when theinternal, minor waves of a fifth, intermediate degree wave project the sameprice zone as the intermediate degree waves preceding the fifth wave, wehave a very reliable price objective. The highest probability priceprojections include projections from one larger and one smaller degree .The smaller degree waves confirm the projections of the next largerdegree waves.
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Pattern and Practical Elliott Wave Analysis
Impulse Wave OneA. Wave one should sub-divide into a five wave sequence.B. Wave one is usually greater in price and time than the recent correctiveswings of similar degree.Wave one is the initial swing against the prior trend. Wave one israrely the longest impulse wave of the five wave sequence. Wave one willfrequently be similar in price and time to the prior corrective wave orwaves, as the conviction of the majority of traders has not changed. Theycontinue to believe the prior trend is still in force and that the wave one isanother correction within the established trend. The most important indication that a wave one may be forming is if the prior trend appears to havecompleted a larger degree corrective structure and the suspected wave onesub-divides in a five wave sequence of lesser degree. Corrective waves areusually three-wave structures such as an ABC, so if the current wave is afive wave sequence it should nor be a corrective wave but a new impulsewave.The chart on the following page shows that the rally from 0 appears tohave unfolded in a five wave structure which signals it may be a wave oneof larger degree.An overbalance of price and/or time is an initial signal that a markethas made a reversal of greater degree than prior counter-trends. Anoverbalance of price and time is when a market makes a counter-trendswing that is greater in price and time range than prior counter-trendswings. If a market makes a five-wave sequence thai overbalances in priceand time prior corrections, it is a strong indication that the trend change islarger in degree than prior counter-trends and the market may be in theinitial stages of a new impulsive sequence.Because wave one is the initial swing in a new impulsive sequence,there are few swings to compare to in order to make price projections.Ideally, the lesser degree five wave sequence within me larger degreewave one will be evident, which will allow price projections from theseminor swings,
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Dynamic Trading - Chapter 3
Wave One SummaryA, Wave one should sub-divide into five waves of lesser degree.B. Wave one is usually greater in time and price than prior correctivewaves of similar degree. The prior corrective wave above is the ABCsequence. The waves 1-5 sequence is greater in price and time than theABC sequence and is therefore probably the sub-divisions of a waveone.
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Pattern and Practical Elliott Wave Analysis
Impulse Wave ThreeA, Wave three is never the shortest of the three impulse waves (1, 3 or 5).B. Wave three is usually the extended impulse wave (greater in price rangethan either waves one or five),Wave 3 verses Wave 1.Since wave one is rarely the longest of the three impulse waves (1,3,5)and wave three is usually the extended impulse wave, we can anticipatethat the minimum price objective for wave three will be 100% of the pricerange of wave one (W.3 = 100% W.1).If the suspected wave three has exceeded the 100% price range ofwave one, a signal has been made that the current wave is probably wavethree of a five wave sequence. If this is the case, the next minimum priceobjective will be where W.3 = 162% W.1. The majority of the time, wavethree will be between 162% and 262% of wave one. In fact, wave threewill often terminate on or very near these projections: W.3 = 162% W.lorW.3 = 262%W.l.Wave 3 verses Wave 2.Wave three is frequently related to wave two by 162%, 200% or 262%(W.3 = 162% W.2, etc.). These are external price retracements and willbe described in detail in the price chapter.Wave 3 verses the expansion of Wave 1.The price terminus of wave three is frequently related to the expansion ofthe price range of wave one- Wave one is also called the "initial impulse."The most important ratios for this projection are: 100%, 162%, 200% and262% of the range of wave one added to the end of wave one. Priceexpansions are described in detail in the price chapter.Wave three is usually the longest and strongest wave.Wave three usually travels at a greater rate of change than waves one orfive. In other words, the slope of wave three is usually more steep thanwave one. The rate of change of wave three usually increases once theextreme of wave one is exceeded. This is the point where the largernumbers of traders or investors become convinced that the trend hasactually changed and begin to enter a bull market en mass or exit a bearmarket in a panic liquidation. This is usually also the third of the thirdwave and usually has the widest range days and often gap moves.
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Dynamic Trading - Chapter 3
Because wave three of three is frequently a powerful move, tradersideally want to be positioned before wave three is underway. Because allof the Dynamic Trading analysis techniques of time and price are leadingindicator that are calculated in advance, this is not just a pipe dream butwill frequently be a reality.
Wave Three SummaryA. Wave three should sub-divide into a five wave sequence of lesserdegreeB. Wave three should travel at a greater rate-of-change than eitherimpulse waves one or five.C. The rate-of-change of wave three will often increase when wave one isexceeded.D. Wave three of three is often a very powerful move with wide-rangeand gap days.E. The price range of wave three will usually be 162% or greater of (heprice range of wave one.Key Trading Strategies For Wave ThreeIf waves one and two of wave three are identified, a low risk/high profitpotential trade is to buy on the breakout from the extreme of wave one ofthree. This is also a strategy often used to add positions if a position wastaken on the wave two correction. If the sub-divisions of wave three arcnot dearly identified, enter on the breakout of the wave one extreme.Ideally, the initial trades will be entered on the wave two correction asdescribed in the correction section.
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Pattern and Practical Elliott Wave Analysis
Impulse Wave FiveWave 5 verses Wave 1.The two non-extended impulse waves of a five wave sequence are usuallynear equality in price range. If wave three is 162% Of greater than waveone, go under the assumption that wave three is the extended wave.If we assume that wave three is extended, wave five will frequently benear equality of price range to wave one (W.5 = 100% W.1). If wave fivedoes not complete at or near the 100% projection of the wave one pricerange, it wilf probably complete near either the 62% or 162% projectionof wave one.If neither waves one or three are extended, wave five will have agreater probability of being the extended wave and 162% or more ofeither waves one or three.
Wave 5 verses Wave 3.The relationship of wave five to wave three is not as consistent as it is toeither wave one or waves one-three. If wave three appears to be extended(greater than 162% of wave one), wave five will usually be near 38%, 50%or 62% of wave three. If wave five extends (greater than the rangeof waves one or three), it will tend to be near 100% or 162% of wavesone-three.Wave 5 verses Waves 1-3.If wave three is extended, wave five will frequently be either 62% or 38%of the price range of waves one-three.Wave 5 verses Wave 4.Wave five is frequently 127%, 162%, 20O% or 262% of the price range ofwave four, W.5 = 162% W.4 is the most frequent.Waves 3-5 verses Wave 2.The net range of waves three through five is usually related to wave twoby a 162%, 262% or 424% retracement of wave two. The end of wave fiverarely exceeds a 424% retracement of wave two.Wave 5 verses the expansion of Wave 1.The price termination target of wave five is frequently targeted by anexpansion of wave one. The most important ratios of wave one expansionrelated to the end of wave five are 162%, 200%, 262%, 300% and 424%.
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Dynamic Trading - Chapter 3
Wave 5 Rate-of-Change.Wave five usually has a lesser rate of change than wave three even if newhighs are being made. In other words, the slope of wave five is usually lossthan the slope of wave three.The psychology of the public, trading and investing advisors andthe media is usually at an extreme in the fifth wave. In a bull market, thetrend must end when there is no more money to invest in the market.The volume in wave five is frequently less than the volume in wave three,even if wave five is making a new price extreme. There are no buyers ofconsequence left to bid up prices. Just when the market position looks themost bullish to the majority, the market peaks. This does not imply that amarket will peak as soon as the bullish psychology is overwhelming, onlythat a marker peak will not occur without the bullish psychology beingoverwhelming.Wave 5 should sub-divide into five waves of lesser degree.A wave five should not end until it has subdivided into five waves oflesser degree. The key to the most accurate price projections to anticipatetrend change is when the waves of one lesser degree project price targetsthat are at or near the same price targets as the larger degree projections.When the price target for wave 5 of 5 coincides with the price target ofwave 5, the odds are high that the coincidental price target will completewave 5.Key Trading Strategies For Wave FiveEnter against ~the trend direction at or near the completion of wave five.One of the lowest risk/highest profit potential trades that patternanalysis can alert us to is identifying the end of wave five. Wave fivecompletes a trend structure and should be followed by a move againstthe five wave trend direction that should he greater in price and time thanany counter-trend swing since the beginning of the five wave structure.If it appears that wave five is nearing completion, stops on currentpositions should be brought close to the market with the expectation thatthe trend is near completion. Traders should also look to enter positionsagainst the five wave trend direction on reversal signals. Ideally, the wavefive sub-divisions will be evident and the time, price and pattern projection zone for the end of wave five of five will provide a narrow priceobjective for trend reversal.
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Pattern and Practical Elliott Wave Analysis
Corrective WavesWhile there is basically just one pattern for impulse waves, a five wavestructure, Elliott described eight different potential patterns with variationsfor corrective waves. Identification and labeling of corrective waves iswhat has not only brought so much confusion to Elliott wave analysis, buthas driven so many people to deny its practical application. In the spiritand necessity of keeping market analysis simple, I am not going to includedescriptions of the many "complex" corrections.Essentially, corrective waves are three wave patterns or various combinations of three wave patterns. The simplest three wave, corrective patternis called an ABC correction. Even within this simple pattern there are fourvariations: zigzag, flat, irregular and running, I am only going to describein detail the ABC corrective patterns and ignore all of the variouscomplex, corrective patterns for two important reasons:1. Once a market has demonstrated that the corrective pattern will not bean ABC correction, it is almost impossible to predict what form thecorrection will take. All labeling of the correction beyond a simpleABC pattern is little more than guess work. The form of the complexcorrection usually only becomes evident after the correction hascompleted.2. There is no practical trading value in knowing all of the complexcorrective variations. The purpose of this training is not to becomeacademic experts of market analysis but recognize and apply analysisand trading strategies that have practical value for making tradingdecisions. We'll let the academics and non-trading analysis argue overthe proper interpretation of market structure while we'll concentrate onwhat helps us to make trading and investing profits.
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Dynamic Trading - Chapter 3
Corrective WavesGeneral Characteristics1. Corrective waves within a five wave structure are waves two and tour.2. Corrective patterns unfold following the completion of a five-wave,impulse structure.3. Corrective patterns unfold in at least a three wave, ABC structure,4. Three wave, ABC corrections may take [he form of 5-3-5 or 3-3-5,That is, the A wave may be three or five waves, the B wave shouldalways be three waves and the C wave should always be five waves.5. Three wave, ABC corrections may take several shapes including azigzag, irregular, flat or running,6. Corrective waves may unfold in an atmost unlimited progression ofthrees and fives called "complex" corrections which can include aseries of ABCs separated by so-called "X" waves. An X wave mayalso he labeled a DK wave (Don't Know). X waves are frequentlyused by Elliott wave analysts to make a count fit as a corrective serieswhen there really is no logical pattern other than the knowledge thatthe market is not undergoing a five wave, impulse sequence.7. Corrections tend to terminate near the range of the fourth wave of onelesser degree,8. Once a correction terminates, a new five wave sequence should follow.
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Pattern and Practical Elliott Wave Analysis
Simple ABC Zigzag Correction (5-3-5)
Simple ABC Zigzag CorrectionA. The correction begins following the completion of a five wave impulsepattern.B. Wave A may be five or three waves. If wave A is five waves, the ABCcorrection is called a 5-3-5. If wave A is three waves, the ABC correction is called a 3-3-5.C. Wave B is a correction of the larger degree correction. Wave B shouldbe a three wave structure.D. Wave C exceeds the extreme of wave A.E. Wave C should be sub-divided into five waves.
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Dynamic Trading - Chapter 3
ABC (3-3-5) Flat Collection
ABC Flat CorrectionA. The correction begins following the completion of a five wave impulsepattern.B. Wave A may be a three or a five.C. Wave B tests the extreme of wave five. Wave B is a three wave.
D. Wave C tests the extreme of wave A. Wave C is a five wave.
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Pattern and Practical Elliott Wave Analysis
ABC (3-3-5) Irregular Correction
ABC Irregular CorrectionA. The corretion begins following the completion of a five wave impulsepattern.B. Wave A may be a three or five wave.C. Wave B exceeds me extreme of wave five. Wave B is a three wave.D. Wave C exceeds the extreme of wave A, Wave C is a five wave.
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Dynamic Trading - Chapter 3
ABC Running Correction
ABC Running CorrectionAn ABC "running correction" appears to be the continuation of the trendrather than a correction to a five wave sequence. For practical purposes, itis considered & correction because it is [he interim pattern between thecompletion of a five wave sequence and the beginning of the next fivewave sequence. A running correction implies a strong continuation of thetrend following the end of the correction. Running corrections are madeinfrequently.A. A running correction begins following the completion of a five waveimpulse pattern.B. Wave A may be a three or a five wave and is relatively shallow.C. Wave B exceeds the extreme of wave 5.D. Wave C retraces wave B and does not exceed the extreme of wave A.
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Pattern and Practical Elliott Wave Analysis
Correction or Impulse?An ABC (5-3-5) zigzag corrective pattern will have the same structure asWaves 1-3 of a five wave impulse pattern. If the position of the market atthe beginning of the structure is not clearly evident, only the pattern of themarket as it unfolds will reveal whether a correction or impulse pattern isunderway.The wave pattern shown below could be the initial stages of a fivewave impulse sequence or an ABC corrective sequence. Which pattern ismore likely to be the case will depend a great deal on the wave structuregoing into the beginning of this pattern.
Correction or Impulse?It's too early to tell for sure without knowing the larger market position at ?.
The one thing we know regarding the above illustration within thecontext of Elliott wave rules is that a five wave sequence should developfrom the low that is labeled 2 or B. That five wave sequence may be awave three or a wave C. The position of the market at? will help determine whether the current activity is a correction or impulse. Even if theposition of? is not clear, a five wave sequence should unfold from a 2 or B.If the five wave sequence from 2 or B extends beyond a 100%Alternate Price Projection (W.C >100% W.A), more than likely it is thebeginning of a five wave sequence. If the five wave sequence from 2 or Bcompletes at less than a 100% Alternate Price Projection (W.C < 100%W.A), more than likely the pattern starting at ? is an ABC correction andnot waves one-three of a five wave sequence.
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Dynamic Trading - Chapter 3
If a five wave sequence completes following 2 or B and the marketthen declines below the top of 1 or A, it cannot be waves one-three, as awave four cannot trade into the price range of wave one.Wave Count IncorrectWave 4 may not trade into the price range of Wave 1.This sequence cannot be a 1-2-3.It may be an ABC or 1-2-1:3.
The wave count shown above assumes the market made a wave threehigh. Price then declined below the lop of wave one. Why is the wavecount incorrect? Wave four may not trade into the price range of waveone. Rather than a 1-2-3 sequence as labeled above, the sequence mustbe reconsidered as either an ABC or 1-2-1:3.As a market unfolds, it will continually provide conditions thatconfirm or invalidate the assumed wave count position.
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Pattern and Practical Elliott Wave Analysis
Corrective PatternsWaves 2 and 4, General GuidelinesFive wave impulse structures are usually more symmetrical in form andpredictable in price objectives than corrective patterns. The analyst mustkeep clearly in mind that one or the most important purposes of Elliottwave, pattern analysis is to determine if the market is in a trend orcounter-trend position and what is the relative degree of that trend orcounter-trend.1. Once we believe a five wave sequence has completed, we can anticipate that at least an ABC correction will follow. In most cases, the Cwave will test or exceed the extreme of the A wave.2. The correction to a five wave sequence will usually be greater in pricerange and time range than the corrections within the preceding fivewave sequence.3. An A wave can be either a five or three wave sequence. If an initialthree wave sequence unfolds, the question arises whether that threewave sequence is the completed ABC correction or just the completionof the A wave of a larger degree ABC. If the initial ABC sequence isless in price or time range than both of the waves 2 and 4 of lesserdegree, it is most likely a three-wave, wave A of the correction,4. Once the market makes a five wave sequence against the trend direction of the correction, we have a strong indication that the correctionhas terminated. B Waves (correction of the correction) should be athree wave structures.5. Principle of Alternation: If wave two is an ABC correction, wave fourwill probably be a complex correction (any sequence that is not eithera five-wave impulse or ABC). If wave two is a complex correction,wave four will probably be an ABC correction. Wave two is usually anABC correction.
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Dynamic Trading - Chapter 3
A five wave sequence is always part of the larger degree trend.A three wave sequence is always part of a counter-trendA correction always follows a five wave sequence. The correction willbe a three wave, ABC pattern at a minimum. Completed corrections areusually not a five wave sequence. A five wave sequence may be only onewave of the larger degree collective trend.In the illustration below, once we recognize that the market hasdeclined in an initial five wave sequence, we know that the correctionshould not be over. We know there will probably be a three part B-waveadvance, followed by another decline to test or exceed the A-wave low.
The five-wave decline should not be a completed correction.Completed corrections should not be five-wave structures.It may be an A wave.
A five wave sequence should not be a completed correction. The fivewave decline shown above is probably wave A of a 5-3-5 (ABC)correction.Trading ImplicationThe A wave is only the initial section of the decline. Following thecorrection to wave A which will be labeled as wave B, the marketshould make another decline to test or exceed the wave A low.
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Pattern and Practical Elliott Wave Analysis
A correction will usually be greater in price and time than the priorcorre