Outline

• 1 Basic Form: 5 wave sequence
• 2 Modes: Motive & Correcting
• 3 orders of simple patterns: 5s, 3s, and triangles
• 5 families of simple patterns:
  • impulse
  • Diagonal
  • Zigzag
  • Flat
  • Triangle
• 13 variations
  • Impulse
  • Ending digaonal
  • Leading diagonal
  • Zigzag
  • Double Zigzag
  • Triple Zigzag
  • Flat
  • Expanded Flat
  • Running Flat
  • Contracting Triangle
  • Barrier Triangle
  • Expanding Triangle
  • Running Triangle
• Combo Variants:
  • Zigzag/Flat
  • Zigzag/Triangle
  • Flat/Flat
  • Flat/Triangle
  • Zigzag/Flat/Flat
  • Zigzag/Flat/Triangle
  • Flat/Flat/Flat
  • Flat/Flat/Triangle

Motive/Impulse Rules:

• 5 Wave Pattern (Impulsive)
  • Wave 1, 3, & 5 are trending.
    • 1 or 5 can be a diagonal
  • Wave 2 & 4 are corrections
    • Can form zigzags, flats, combos and triangle (← W4)
    • Alternation occurs to differentiate W2 & W4
      • Price: If W2 is deep, W4 is shallow
      • Time: If W2 is short duration, W4 is long duration
      • Pattern: if W2 is simple, W4 is complex
      • Most often W2 is a Zigzag and W4 is flat, triangle or triangle combo
  • When not extended W1-5 have a .382 & .618 relationship - impulse/retrace
  • Unless W1 is extended, Wave 4 is often the dividing line of the golden section (W1-4 = .618 of move when wave 5 is not extended & .382 if Wave 5 extends
  • Wave 1
    • W1 goes in direction of trend beyond the SD of median price change
    • Can be a diagonal
    • Personality:
      • Half of them are a part of the “basing” process (Generally those that kick of a bull run of sorts) so they tend to be heavily corrected by Wave 2
      • Others, such as impulse corrections in a bear market, have more volume and breadth as short sellers set positions
      • The other half rise from established bases from the previous correction, from swing failures, or from extreme compression. These ones are only moderately retraced.
      • Point being, what preceded W1 indicates how it will be corrected.
  • Wave 2
    • W2 can retrace up to 99% of W1, but not move beyond
    • Most often a zigzag
    • Often cause one to question if they made the right choice to go long.
    • Often end on low volume and volatility, indicating drying up sell pressure
  • Wave 3
    • W3 is NEVER the shortest and is most often the longest
    • Tends to be the steepest
  • Wave 4
    • W4 can not retrace all of W3
    • Wave 4 can not enter Wave 1 territory
    • Most often will be a triangle, flat, or combo
    • W4 often ends when it is within the price range of the 4th subwave of W3
    • W4 often subdivides the entire impulse into Fibonacci proportion in time and/or price
    • W4 should be predictable in its retrace as it should alternate with W2
    • They often move sideways or in a triangle and thus build a base for wave 5
  • Wave 5
    • Can be a diagonal
    • Often ends on the parellel (See Parallelism)
    • In large cycles volume increases
    • But in lower time frames, volume is reduced as buy enthusiasm cools, that is unless the 5th wave is extended
    • Will almost always look weaker than W3
  • Extensions
    • Extension are often found in 5 wave impulses.
      • When W3 or W5 are extended the impulse will have a 9 wave pattern with 5 impulses and 4 corrections
      • When W3 AND W5 are extended the impulse will have a 13 wave pattern with 7 impulses
      • 1, 3 AND 5 can't be extended
      • W1 can extend but it's not common
  • W5
    • When W5 is extended, it is often in Fibonacci proportion to the net travel of waves 1-3
  • W1
    • When W1 is extended, it is often in Fibonacci proportion to the net travel of waves 3-5
  • When a wave is extended it tends to advance 1.618 of its previous wave.
    • W3 ext. - Waves 1-5 tend towards a .618 relationship
    • W5 ext - Waves 1-3 tend towards a .618 relationship
    • W1 ext - Wave 1 has a .618 relationship with W3-5
  • Truncation
    • When W5 doesn't extend above W3. Happens often after a strong W3
  • Parallelism
    • Parallelism occurs generally when a line is drawn from the start of W1 through W2 and is parallel to a line drawn from W3 and W5
  • Generalized Impulse Fib Pattern
    • W1 Advance
    • W2 = .618 retracement of W1 (FRT)
    • W4 = .382 retracement of W3 (FRT)
    • W5 = 1.618 ext of wave 1 (FRT)
    • W5 = .618 of W0-3
    • W2 - A=B=C
    • W4 - A=C
    • W4 - WB = .236 of wave A
• Leading and Ending Diagonal Triangles (Motive)
  • A slower move in line with the trend where all the waves overlap.
  • No reactionary subwave fully retraces preceding actionary subwave
    • W2 does not fully retrace W1
    • W3 always goes beyond the end of W1
    • W4 never goes beyond the end of W2
    • W4 ends within the price territory of W1
  • However W4 almost always moves into the price territory of W1
  • Count is generally 3-3-3-3-3.
  • W2 and W4 usually retrace .66-.81 of preceding wave
• Expanding Diagonal
  • Expanding Wedge
  • Wave 1 is the shortest
    • Waves increase in size through 2-5
      • Wave 5 must be longer than wave 3 extreme
    • Wave 5 subject to under throw or over throw
    • W3 is longer than W1
    • W4 is longer than W2
    • W5 is longer than W3
  • W5 usually ends slightly before reaching the W1 &W3 trendline
• Contracting Diagonal
• Leading Diagonals
• Ending Diagonal
• Guidelines
• Ending Diagonal

Corrective Rules

• Corrective waves are formed in 3 wave ABC patterns
• The more time the correction takes, the more complex it becomes. Waves are fractals
• Wave C tends to be the most complex