Actionary (1, 3, 5, A, C, E, W, Y and Z)

Reactionary (2, 4, B, D and X)

MOTIVE (5 WAVES)
- waves 2 and 4 never retrace more than 100 % of wave 1 and 3 - wave 3 always travels beyond wave 1 - in price terms, wave 3 is often the longest but NEVER the shortest of the actionary subwaves (i.e. 1,3,5)

CORRECTIVE (3 WAVES)
- they can NEVER be 5 wave patterns (except triangles?) - there are 4 main categories as below

Zigzags (5-3-5) Impulse

- should be easily identifiable, volume should be higher during trend waves and lower during counter trend waves with wave 3 typically showing the highest (but this may not be true for very short time frames) - waves 4 does not overlap wave 1 - actionary subwaves (1,3,5) are motive and subwave 3 is impulse - no reactionary subwave fully retraces the preceding actionary subwave

Triangles
- cause a sideways movement usually associated with decreasing volume and volatility - contain 5 overlapping waves that subdivide into 3-3-3-3-3 and are labelled ab-c-d-e - delineated by connecting termination points of a and c, and b and d - wave e more often than not overshoots or undershoots the a-c line - extremely common for wave b of a contracting triangle to exceed the start of wave a (termed 'running triangle) - despite sideways appearance, all triangles effect a net retracement of the preceding wave at wave's end - most subwaves in a triangle are zigzags, but sometimes one of the subwaves (usually c) might be regular or expanded flat or multiple zigzag. - rare, but one of the subwaves (usually e) is itself a triangle (so that entire pattern protracts into 9 waves) - nearly always occur in positions prior to final actionary wave in the pattern of one larger degree (i.e. wave 4 in an impulse, wave B in A-B-C, or final wave X in a double/triple zigzag or combination. Extremely rare to be in wave 2 of impulse - when triangle occurs in wave 4 position, wave 5 is sometimes swift (called "thrust") and travels approx. distance of widest part of triangle. Thrust is normally impulse but can be ending diagonal CONTRACTING TRIANGLE - Symmetrical: top declining, bottom rising - Ascending: top flat, bottom rising - Descending: top declining, bottom flat EXPANDING TRIANGLE - has only one form: top rising, bottom declining

Diagonal Triangles
- motive yet not an impulse - no reactionary subwave fully retraces the preceding actionary wave - 3rd wave is NEVER the shortest - the only 5 wave structure in direction of main trend whereby wave 4 almost always overlaps wave 1 - 5th waves of diagonals often end in "throw-over" (i.e. brief break of trend lines connecting waves 1 and 3) accompanied by volume spike and in rare cases 5th wave falls short of resistance trend line - rising diagonal usually followed by retracement to where it began (converse is true for falling diagonal) ENDING DIAGONAL (wedge shaped, converging lines) - occurs primarily in 5th wave position - when too far to fast preceding - always found at termination points of larger patterns (indicating exhaustion) - very small percentage appear in wave C position (in double or triple threes, only as the final C wave) - each subwave subdivides into 3 (forming a 3-3-3-3-3 wave pattern) LEADING DIAGONAL - occurs in wave 1 of impulses and wave A position of zigzags - waves 1 and 4 overlap and boundary lines converge - traces out 5-3-5-3-5 pattern - don't confuse with series of 1st and 2nd waves (far more common). differentiate by the slowing of price change in the 5th subwave relative to the 3rd v increasing short term speed between 1st and 2nd

-top of wave B is noticeably lower than start of A (in a bull market) or higher (in a bear market) - often move quickly and retrace a large portion of the wave they are correcting - will occasionally occur twice or three times at most in succession, particularly when the first zigzag falls short of a normal target. Here each zigzag is separated by an intervening "three", making a double or triple zigzag. These formations are analogous to extension of an impulse but are less common

Flats (3-3-5)
- occur in periods involving strong larger trend and thus virtually always precede or follow extensions - the more powerful the underlying trend, the briefer the flat - within impulses, 4th waves frequently sport flats, 2nd waves less so REGULAR FLAT - wave B ends near start of A, C generally ends slightly beyond end of A EXPANDED /IRREGULAR FLAT (common) -B terminates beyond start of A, and C ends more substantially beyond end of A - show underlying trend is very strong RUNNING FLAT (rare) - B terminates well beyond start of A, BUT C falls short of the end of A

Extension
- most impulse waves contain an extension and do so mostly in only one of the 3 actionary subwaves - if below primary degree, developing 5th wave extension will be confirmed by new high volume - most commonly extended wave is wave 3 and 3rd wave of an extended 3rd wave is typically an extension

Truncation
- usually verified by noting that the presumed 5th wave contains the necessary 5 waves - often occurs following an extensively strong third wave

Combinations
DOUBLE AND TRIPLE THREES (i.e. sideways combinations) - combination of simpler types of corrections (zigzags, flats, triangles) - appears to be flat correction's way of extending the sideways action - each simpler correction is labelled W, Y, and Z - reactionary waves, X, can take any form but are most commonly zigzags - appears to be never more than one zigzag or triangle (which are normally the final wave) in a combination - in double/triple zigzag, first zigzag is rarely large enough to constitute adequate price correction of the preceding wave and the doubling/tripling is needed to make it an adequate retracement

Which actionary waves develop in corrective mode? - waves 1, 3 and 5 in an ending diagonal - wave A in a flat correction - waves A, C and E in a triangle - waves W and Y in double zigzags and double corrections - wave Z in triple zigzags and triple corrections

Wave 1s
- rarely recognized at their inception, when the news is almost universally bad and previous trend is seen as still being in force - analysts are revising estimates lower, sentiment polls are at typically at historic bearish extremes - much greater interest in put options than call options and implied volatility is typically quite high - volume might pick up a bit but should not be very high (which implies rampant short selling and a bear market correction) - slow and steady price increase fits more closely to start of a new bull market ----------------------------roughly speaking, half of wave 1s are part of the basing process and thus tend to be heavily corrected by wave 2 - in contrast to the bear market rallies within previous decline, however, this 1st wave rise is technically more constructive, often displaying subtle increase in volume and breadth. - Plenty of short selling is in evidence as majority finally become convinced that overall trend is down and investors take advantage of one more rally to sell on. - the other 50% of wave 1s rise from either large bases formed by previous correction, from downside failures, or from extreme compression. From such beginnings they are dynamic and only moderately retraced

Wave 3s (wonders to behold) - this is where most of the public will realize that the bear market is over -strong and broad (including almost all stocks), trend is unmistakable, volume is usually highest - increasingly favourable fundamentals as confidence returns - any pull-backs will be short-lived and shallow and therefore anybody waiting will lose out - It is most often the extended wave in the series and wave 3 is usually at least 1.618 times as large as wave 1 in price terms but because it is very powerful will probably take less than 1.618 times as long to complete -third wave of a third wave will be the most volatile point of strength and invariably produce breakouts, "continuation" gaps, volume expansions, exceptional breadth, major Dow Theory trend confirmations - momentum almost always confirms the price highs - momentum divergences confirm price action at the end of wave 3 (if it appears complete and momentum does not confirm it probably means it is a C wave at the end of a correction or end of a first wave of a larger wave 3) Wave 4s
-predictable in depth and form because by alternation they depend and should differ from previous 2nd wave of the same degree. - all the books say they should retrace 38% of wave 3 but they often fail to and may retrace more - usually clearly corrective, difficult to count, price declines are shallow and volume is much less than wave 3 - volatility probably wont pick up very much even though prices are dropping - can take a long time to develop but should not take longer than previous impulse waves however, be warned it is possible if that is the only inconsistency -this initial deterioration sets stage for non-confirmations and subtle signs of weakness during wave 5 - it is the first time that some analysts start to warn that prices have gone to far and profit taking may ensue

A waves

D waves

Wave 2s
-they rarely retrace less than 38% and often retrace 61.8% of wave 1 (this can be exceeded if the time frame is very short or we are fighting off a major, entrenched bear market, but otherwise there is a strong possibility the count is wrong) - assuming a bull market, the drop should be in three waves (remember if it s a-b-c zigzag down, wave a would still develop in 5 waves but the retrace amount of wave 1 should be rather small by the time wave a completes) -second subwave of wave 3s is often very shallow and could retrace less than the 38% - they are often fast and furious though a second wave which is part of a corrective wave is not likely to be as powerful as a wave 2 that is correcting the initial wave of a major reversal - volume should be lower than wave 1 - second waves often produce downside nonconfirmations and Dow Theory "buy spots", when low volume and volatility indicate a drying up of selling pressure

-Typically seen as a correction of the then-current - accompanied by increased volume in all but trend when it is actually the first leg of a reversal, or expanding triangles larger correction - as phony as B waves -5 wave A indicates a zigzag for wave B, while a 3 wave A indicates a flat or triangle E waves -If wave a was just three waves but achieved a deep - in triangles, they appear to most to be dramatic retracement of the prior impulse wave, then kick off of a new downtrend after a top has been probabilities favour a resumption of the prior trend built - if wave a was also very fast, even if the retrace was - almost always accompanied by strongly supportive deep, the odds favour a period of range trading (i.e. views triangle/flat/irregular/or even more complex) - tendency to stage a false breakdown through the meaning you can use oscillators for entries and exits triangle boundary line, thus intensifying bearish more reliably conviction - if there are only three subwaves, and if the correction is shallow, wave a may not be done - during bear markets, investment world believes this reaction is just a pullback pursuant to the next C waves leg of advance - Volumes and volatility might pick up but not nearly - very impulsive (high level of fear), always 5 waves, close relative of third waves enough to imply a bottom - in zigzags, C waves normally exceed wave A in time and size B waves (phonies, most difficult to track) -Volume may be higher in C than A -always either three wave patterns or triangles - some suggest that wave C should not continue - in a flat they should retrace nearly all of wave A beyond 1.618 times wave A but inconsistencies and at least 62% of it and by definition retrace more occur. If wave C completes a flat, its length is usually than 100% if irregular/expanded similar to that of wave A - in a zigzag wave b typically corrects 38% to 62% of -can be mistaken for new upswing if within upward wave A. Zigzags have far more bearish implications corrections of bear markets than flats and irregulars do -if A has five legs (i.e. In a triangle the most confusing of B waves) the retrace is normally < 62% - sucker plays, often involve focus on narrow list of stocks, often unconfirmed by other averages, rarely technically strong, virtually always doomed to complete retracement by C - X and D waves in expanding triangles have the same characteristics - B waves of intermediate degree and lower usually show declining volumes while those of primary degree and greater can display volume heavier than that which accompanied preceding bull market

Wave 5s
- often ends with momentum divergences, volume is lower than wave 3 but as high or higher than wave 4 - less dynamic than wave 3 in terms of breadth, slower max speed of price change (unless extension) - optimism runs very high despite narrowing of breadth, everybody is bullish

Alternation - always expect a difference in the

next expression of a similar wave IMPULSES - one of the two corrective phases will contain a move back to or beyond the end of the preceding impulse, the other will not - Wave 2 and wave 4 will usually not look alike (i.e. if wave 2 is a sharp correction, wave 4 is more likely to be sideways and vice versa) - sharp corrections NEVER include a new price extreme, they are almost always zigzags (single, double, triple), occasionally they are double threes that begin with a zigzag. - sideways corrections include flats, triangles, double and triple corrections, they usually include a new price extreme, in rare cases a regular triangle (i.e. one that does not include a new price extreme) in 4th wave position will take the place of a sharp correction and alternate with another type of sideways pattern in the 2nd wave position - diagonal triangles do not display alternation between subwaves 2 and 4, typically both are zigzags - extensions are an expression of alternation CORRECTIVE WAVES - if a large correction begins with a flat a-b-c construction for wave A, expect a zigzag a-b-c for wave B and vice versa - quite often, if a large correction begins with a simple a-b-c zigzag for wave A, wave B will stretch out into a more intricately subdivided a-b-c zigzag to achieve alternation. Sometimes wave C will be yet more complex. The reverse order of complexity is less common.

Channelling
- one of the guidelines of EWT is that two of the motive waves in a five wave sequence will tend toward equality in time and magnitude. This is generally true of the two non-extended waves when one is an extension and is especially true if the 3rd wave is an extension. If perfect equality is lacking, a 0.618 multiple is the next likely relationship TECHNIQUE - parallel trend channels typically mark the upper and lower boundaries of impulse waves, often with dramatic precision - when wave 3 ends connect points 1 and 3, then draw a parallel line touching point 2. This initial channel provides an estimate boundary for wave 4 - if wave 4 ends at a point not touching the parallel, you must reconstruct the channel in order to estimate boundary for wave 5. First connect wave 2 and 4 - if waves 1 and 3 are normal, upper parallel most accurately forecasts end of wave 5. If wave 3 is abnormally strong, almost vertical, a parallel touching the top of wave 1 is usually more useful. THROW-OVER - within parallel channels and converging lines of diagonal triangles, a 5th wave approaching the trendline on declining volume indicates the wave will meet or fall short of it. Heavy volume indicates a possible throwover - near the point of throw-over, a 4th wave of small degree may trend sideways immediately below the parallel, allowing 5th to break in final gust of volume - occasionally telegraphed by a preceding "throwunder" either by wave 4 or 2 of 5. They are confirmed by immediate reversal back below the line.

Depth of corrective waves/bear markets

- corrections/bear markets, especially when they themselves are 4th waves, tend to register their maximum retracement within the span of travel of the previous 4th wave of one lesser degree, most commonly near the level of its terminus - however, it is often the case that if wave 1 in a sequence extends, the correction following the 5th wave will have as a typical limit, the bottom of the 2nd wave of lesser degree -On occasion, flat corrections or triangles, particularly those following extensions, will barely fail to reach into the 4th wave area - Second wave corrections tend to be fairly deep - Zigzags, on occasion will cut deeply and move down into the area of the 2nd wave of lesser degree, although this almost exclusively occurs when the zigzags are themselves 2nd waves. "Double bottoms" are sometimes formed in this manner - when wave 5 of an advance is an extension, the ensuing correction will be sharp and find support at low of wave 2 of the extension. Sometimes the correction may end there or it may just be an accurate turning point for A.

Throw-over
- generally true of the two non-extended waves when one is an extension and is especially true if the 3rd wave is an extension. If perfect equality is lacking, a 0.618 multiple is the next likely relationship TECHNIQUE - parallel trend channels typically mark the upper and lower boundaries of impulse waves, often with dramatic precision - when wave 3 ends connect points 1 and 3, then draw a parallel line touching point 2. This initial channel provides an estimate boundary for wave 4 - if wave 4 ends at a point not touching the parallel, you must reconstruct the channel in order to estimate boundary for wave 5. First connect wave 2 and 4 - if waves 1 and 3 are normal, upper parallel most accurately forecasts end of wave 5. If wave 3 is abnormally strong, almost vertical, a parallel touching the top of wave 1 is usually more useful.

Volume
- a low point in volume often coincides with a turning point in the market. - in normal 5th waves below Primary degree, volume tends to be less than in wave 3s. If volume in wave 5 of less than Primary degree is equal to or greater than in wave 3, an extension of the 5th wave is in force (this is expected anyway if wave 1 and 3 are about equal in length, but it is an excellent warning of rare times when both wave 3 and 5 are extended) - volume at terminal point of a bull market above Primary degree tends to run at all time high

Retracements
-Occasionally a correction retraces a Fib % of the preceding wave - markets are more likely to obey Fib lines (and other measures of support and resistance) during times of high volatility -sharp corrections often tend to retrace 61.8% or 50% of the previous wave, particularly when they occur as wave 2 of an impulse, wave B of a larger zigzag, or wave X in a multiple zigzag - sideways corrections tend more often to retrace 38.2% of the previous impulse wave, particularly when the occur as wave 4

Motive Wave Multiples

- wave 3 usually exceeds the size of wave 1 by 1.618 times but may reach 2.618 or 4.236 times - a weak wave 5 might only attain 0.618 of wave 1 - if waves 1 and 3 are close in size, wave 5 will likely reach 1.618 or more times wave 1 - the distance travelled by wave 5 usually reaches between 61.8% and 100% of the total price gain/loss covered by wave 1 through 3. A move greater than 100% likely means current leg is actually wave 3 of very powerful third - as a generalization, unless wave 1 is extended, wave 4 (at the point of its start, end or extreme countertrend point) often divides the price range of an impulse wave into the Golden Section whereby the latter portion is 0.382 of the total distance if wave 5 is not extended (Fig 4-6) and 0.618 when it is (Fig 4-7). It therefore provides two or three closely clustered targets for the end of wave 5 and this guideline explains why the target for a retracement following a wave 5 often is doubly indicated by the end of the preceding 4th wave and the 0.382 retracement point. -when wave 3 is extended, 1 and 5 tend to equality or a 0.618 relationship (Fig 4-3) -wave 5's length is sometimes related by the Fib ratio to the length of wave 1 through 3 (Fig 4-4). 0.382 and 0.618 relationships occur when wave 5 is not extended. - in rare cases where wave 1 is extended, wave 2 often subdivides the entire impulse wave into the Golden Section (Fig 4-5)

Corrective Wave Multiples

-wave C is often very close to A in size (Fig 4-8) and usually not more than 1.618 of A in a zigzag and is not uncommonly also 0.618 times A. The same relationship applies to a second zigzag relative to the first (Fig-4-9) - weaker corrections may see wave C reach only 61.8% of A - in flats, wave C rarely exceeds a 1.000 ratio to wave A - subsequent legs of a triangle often retrace 61.8% of the prior leg - in a regular flat, A, B and C are approximately equal (4-10) - in an expanded flat, wave C is often 1.618 times the length of wave A. Sometimes C will terminate beyond the end of A by 0.618 times the length of A. Both tendencies are illustrated in Fig 4-11 - wave B in an expanded flat is sometimes 1.236 or 1.382 times the length of A - in rare cases wave C is 2.618 times the length of wave A - in a triangle at least two of the alternate waves are typically related by 0.618 (i.e. e=0.618c, c=0.618a, or d=0.618b). In an expanding triangle the multiple is 1.618 and in rare cases, adjacent waves are related by these ratios - in double and triple corrections, the net travel of one simple pattern is sometimes related to another by equality or particularly if one of the threes is a triangle, by 0.618 - wave 4 quite commonly spans a gross and/or net price range that has an equality or Fib relationship to its corresponding wave 2. As with impulse waves, these relationships usually occur in percentage terms