A phenomenon where wave 5 of an impulse fails to exceed the end of wave 3. Also called truncation. Usually occurs after an exceptionally strong wave 3.
Description
A failure (or truncation) occurs when the 5th wave of an impulse does not move beyond the end of the 3rd wave. Despite being a 5-wave structure, wave 5 falls short. This typically follows an unusually strong wave 3. A truncated wave 5 still contains five sub-waves. Failures are bearish signals when the trend is up (or bullish in downtrends) because the market lacks the momentum to make a new extreme.
Key Points
- Wave 5 ends below the end of wave 3 (in an uptrend) — fails to make a new high
- Usually occurs after an extended, very strong wave 3
- Wave 5 still subdivides into five waves internally — the five-wave structure is preserved
- Signal: if the trend is up and wave 5 truncates → a significant decline often follows
- Distinguish from a running flat B wave, which can also exceed the prior extreme
