How to plan trading scenarios after the completion of wave (3) in an ongoing impulse. Projecting the (4) wave correction target and the (5) wave completion zone.
Description
After wave (3) of an impulse completes, the analyst should plan for the likely (4) wave correction and subsequent (5) wave impulse. This involves projecting the depth of the (4) correction using the previous 4th wave guideline and Fibonacci ratios, then projecting the (5) wave target using equality or Fibonacci projections.
Steps
- STEP 1: Confirm that wave (3) has completed: look for a loss of momentum, divergence in oscillators, or a clear 5-wave structure ending at a new extreme.
- STEP 2: Project the (4) wave correction depth: the previous 4th wave zone (4th sub-wave of wave 3) is the primary target. Fibonacci 38.2% of wave (3) is a common guideline.
- STEP 3: Determine the likely form of wave (4): if wave (2) was sharp (zigzag), wave (4) will likely be sideways (flat/triangle/combination) per alternation.
- STEP 4: After (4) completes, project wave (5) target: if wave (1) = wave (3), use equality with wave (1) from the end of wave (4). Or use 0.618× (wave 1 start to wave 3 end) from wave 4 end.
- STEP 5: Monitor for signs of wave (5) completion: channel line breach, throw-over, volume divergence, oscillator divergence, or truncation.
Key Points
- Wave (4) must not overlap wave (1) in a standard impulse — this is a rule, use it as a stop
- A complex wave (4) (triangle or combination) often precedes a strong, quick wave (5) thrust
- When wave (3) extends strongly, wave (5) is often shallow or truncated
