Dear friends!

Today, I will cover the most complicated rule of retracement, retracement rule 4.
This rule contains not only the conditions of application, you’re already familiar
with, but they're also the sub-categories within conditions.

If you are not familiar with the NeoWave theory, I strongly recommend you read all
the articles in the NeoWave series, based on Glenn Neely’s book Mastering Elliott
Wave, starting from the first one:

Neo Wave theory. Part 1. Rules for creating charts

Neo Wave theory. Part 2. Basic information on Polywaves and Structure Labels  

NeoWave. Part 3. Retracement Rule 1.

NeoWave theory. Part 4. Retracement Rule 2.

NeoWave theory. Part 5. Retracement Rule 3.

Description of the fourth rule of the retracement proportions and how to

use it

It's time to look into the most complicated rule of retracement proportions - the
fourth one. It has not only the already familiar conditions but also categories of the
rule.

Rule 4

This rule states that wave m2 is moving in the opposite direction of m1 and is at
least 61.8% but less than 100%. The m3 is between 100% and 261.8% of m2. When
you measure the relation between m0 and m1, pick up one of the following
conditions and use the corresponding structure labels. Next, you need to find out
the relation between m3 and m2 and pick up the category corresponding to a
particular market situation.

Condition (a). m0 is less than 38.2% of m1

When the condition (a) is met, place “:F3/:c3/:s5/[:sL3]” and pick up the relevant
category.

Category “i”. m3 is at least 100% but less than 161.8% of m2.

1. If m3 (plus one time unit) is completely retraced slower than m1 took to form, m1
should be the first element of a correction that follows an x-wave. Accordingly, in
this case, the x-wave is m0. The m1 may also be the end of a corrective phase which
is part of a larger standard or non-standard formation. In this case, place ":F3/:s5"
at the end of m1. If ":F3" is chosen, ml is the a-wave of a flat correction. If ":s5" is
appropriate, m1 is the end of a zigzag pattern. Remember, the base structure labels
used for standard patterns are covered in detail in the second part, I will deal with
non-standard formations in my next training articles.

However, if m1 is less than 61.8% of m(-1),drop ":s5" from theStructure list. If m0

simultaneously takes less time than m(-1) and m1, drop ":s5" from m1's list.

2. If m3 is completely retraced in the same amount of time (or less) that it took to
form, there is hardly any chance that m1 completed an Elliott pattern. In this case,
place only ":F3/:c3" at the end of m1.

Besides:
 If none of m2's price range is shared by m0, drop ”:c3" from the structure list.
 If m1 is retraced no more than 70% and none of m2's price range is shared
by m0, and m3 is almost 161.8% of m1, and m0 takes more time than m(-1)
or m1, add ":s5" to the structure list.

 If “:F3” is used in the structure list, m1 could be an a-wave of a correction

within a larger complex formation, m0, in this case, would be an x-wave.

 If ":c3" is still in the structure list, m1 may be a segment of a terminal impulse

or an expanding triangle.

 If “:s5” is still in the structure list, m1 is likely to be the third wave of a 5th
extension impulse pattern.

3.     If m3 is retraced less than 100%, place ":F3/:s5" at the end of m1.

Besides:
 If m2 is composed of more than three monowaves and m2 (plus one time
unit) is completely retraced faster than it took to form, and m2 takes more
time than m1, and m2 breaks a trendline drawn across the endpoints of m(-2
)and m0 faster than m1 took to form, then m1 may be the end of a zigzag
contained within an irregular or running correction; In this case, add “:L5” to
the Structure list at the end of m1. If “:s5” is appropriate, m1 is the end of a
zigzag pattern.
  If m0 simultaneously takes less time than m(-l) and ml, drop ":s5" from the
structure list.

 If ":F3" is chosen, m1 is an a-wave of a flat or a triangle correction.

Category “ii”. M3 is between 161.8% and 261.8% (inclusive) of m2

1. If m(-1) is more than 261.8% of m1 or m4 is longer than m3, there is hardly any
chance that m1 is the end of any Elliott formation. So, only place “:F3” at the end of
m1.

2.  If m4 is shorter than m3, add “:s5” to m1’s structure list, and then follow the
below conditions to identify what type of Elliott pattern is forming:
a. If m2 is no more than 70% of m1, and m1 is between 101%–161.8% of m(-1), and
none of the price range covered by m2 is shared by m0, and m(-2) is longer than
m(-1), then m1 is likely to conclude the third wave of a trend 5th extension pattern.

Besides, if m1 is between 161.8%–261.8% of m(-1), it becomes more likely that m1 is

the end of a zigzag within a complex correction, where m2 is the x-wave.

b. If m2 is not more than 70% of m1, and m1 is at least 100% but less than 161.8%
of m(-1), and some of the price range covered by m2 is shared by m0 and m(-2) is
longer than m(-1), then m1 may be the end of the third wave of a terminal 5th
extension impulse pattern.

c. If m1 is between 161.8% and 261.8% (inclusive) of m(-1), it becomes more likely
that m1 is the end of a zigzag within a complex correction, m2, in this case, is the
end of the x-wave.

In all cases (a, b, c) the third wave idea is still possible if you identify the third wave
as an element of a double extension terminal pattern with the 5th wave the
longest. I will cover this case in my next educational articles.

However, if m1 is more than 261.8% of m(-1), the only correct choice is that m1 is
an element of a complex correction.

d.  If m2 is no more than 70% of m1, and m1 is smaller than m(-1), m1 can only be a
part of a zigzag.

e. If m2 is more than 70% of m1, m1 likely to be the final element in a zigzag.

However, if the price ranges of m0 and m2 share some common areas, and m3 is
retraced faster than it took to form, m1 may be the third wave of a 5th extension
terminal impulse pattern.
Category “iii”. M3 is more than 261.8% of m2

1. If m(-1) is more than 261.8% of m1, there is virtually no chance m1 is the end of
any Elliott formation; place only ":F3" at the end of m1.

2. If m4 is shorter than m3, it is extremely unlikely that m1 is the beginning of any
Elliott pattern, place only “:s5” at the end of m1.

Let us see how the (a) condition of retracement rule 4 works on the example.

First, we check if rule 4 is observed. Wave m2 is moving in the opposite direction

relative to m1, and m2 is about 78.6% of m1, which corresponds to the
requirements of the fourth rule.
The m0 is less than 38.2% of m1, and so, the requirements of the (a) condition of
the fourth retracement rule.

Now, we need to pick the relevant category. The length of m3 is between 161.8%
and 261.8% of m2, and so, it is category ii of the (a) condition of rule 4.
Now, let us see which paragraph of the ii category corresponds to our market
situation. As m4 is shorter than m3, the second paragraph is relevant in our
situation. And so, we add “:s5” to the structure list of m1, then, we need to identify
what type of the Elliott pattern is forming.

The length of m2 is less than 70% of m1, and so, we shall refer to the paragraphs
from a to d.
The length of m1 is within the range of 161.8%–261.8% of m(-1), the price ranges
covered by m0 and m2 do not share the same territory (the starting and the ending
points of these waves may coincide), and it is clear that m(-2) is much longer than
m(-1). Therefore, the sub-category c is relevant. The m1 is more likely to conclude a
zigzag within a complex correction, and m2 is the x-wave (we add “x:с3” to its
structure list).

Condition (b). m0 is at least 38.2% but less than 100% of m1

If the “b” condition is met, we place one or several labels

“:F3/:c3/:s5/(:sL3)/(x:c3)/[:L5]” at the end of m1.

Category “i”. m3 is at least 100% but less than 161.8% of m2

1. If m3 (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, there is hardly any chance that m1 completes an Elliott
pattern. Place only “:F3/:c3” at the end of m1.

Besides:
 If the most likely scenario is “:c3”, m1 is an element of a terminal impulse
pattern.
 If the end of m3 is exceeded before the end of m0, and m1 is the longest
when compared to m(-1) and m(-3), and m2 breaks a trendline drawn across
 the low of m(-2) and m0, in a period of time equal to or less of that taken by
m1, m1 may be the 5th wave of a 5th extension pattern, add “[:L5]” to the
end of m1.

2. If m3 is retraced during the period of time longer than it took to form, place
“:F3/:c3/:s5” at the end of m1.

Besides:
 If the end of m1 is exceeded during the formation of m2, add "x:c3" to the
Structure list.
 If the end of m3 is crossed before the end of m0, and ml is the longest when
it is compared to m(-1)and m(-3), and m2 breaks a trendline drawn across the
low of m(-2) and m0 in a period of time equal to or less than that taken by
m1, m1 may be the fifth wave of a 5th extension pattern. Therefore, add
“[:L5]” to the end of ml.

 If ml is less than 61.8% of m(-1), drop ":s5" from the list. If m3 is retraced less
than 61.8%, drop ":F3" as a possibility. If m0 simultaneously takes less time
than m(-1) and m1, drop ":s5" from the list.

 If m(-1) is not less than 161.8% of m1, and m4 is less than 61.8% of m3, drop
“:F3” from the list.

3.   If m4 is shorter than m3, m1 will hardly be the start of any Elliott pattern, and
so, place “:c3/:s5” at the end of m1.

Besides:
 If the end of m1 is exceeded during the formation of m2, add an "x" in front
of ":c3"
 If m2 is composed of more than three monowaves, andm2 is completely
retraced faster than it took to form, andm2 takes more time than m1, andm(-
1) is at least 161.8% of m0, andm2 breaks a line which is drawn across the
end of m(-2) and m0 faster than m1 took to form, then m1 may be the end of
a zigzag contained within an irregular or running correction. In this case, add
":L5" to the structure list at the end of m1.

 If m0 (plus one time unit) takes less time than m(-1) and less time than m1,
drop ":s5" from the list.

 If m(-2) is longer than m(-1), and ":c3" in the list is not preceded by an "x,"
drop “:c3" from the list. You should also remove “:c3” from the list if m5 is not
completely retraced as fast as it took to form,
  If ":c3" is still a possibility, m1 may be the x-wave of a complex correction;
add "x:c3?” as an additional structure label to m1 ’s list.

4.  If m4 is less than 61.8% of m3, m1 will hardly start any Elliott pattern. In this
case, place “:c3/:sL3/:s5” at the end of m1.

Besides:

·        If the end of m1 is exceeded during the formation of m2, add an "x" in front of
":c3".

·       If m1 is the longest when compared to m(-l) and m(-3), andm2 breaks a
trendline drawn across the low of m(-2) and m0 in a period of time equal to or less
than that taken by m1, m1 may be the 5th wave of a 5th extension pattern; add
[:L5] to the end of m1.

·       If waves from m3 through m5 together do not achieve a price distance of

161.8% of m1 (or more) and/or m2 (plus one time unit) is not completely retraced in
the same amount of time that it took to form (or less), drop ":sL3" from the list.

·      If m0 (plus one time unit) simultaneously takes less time than m(-1 ) and m1,
remove ":s5” from the list.

·      If m(-2) is longer (in price) than m(-1), and ":c3" is not preceded by an "x,"drop
":c3" from the list.

·     If ":c3" is still a possibility, m1 may be the x-wave of a complex correction, and
so, add "x:c3?" as an additional structure label to m1's list.

Category ii. m3 is between 161.8% and 261.8% (inclusive) of m2.

1. If m(-1) is more than 261.8% of ml, there is virtually no chance m1is the end of
any Elliott formation; place only. ":F3/:c3" at the end of ml. If the end of ml is
exceeded during the formation of m2, add an "x" in front of ":c3".

2. If m1 is the longest wave when compared to m(-l) and m(-3) andm2 (plus one
time unit) breaks a trendline drawn across the low of m(-2) and m0 in a period of
time equal to or less than that taken by m1, m1 may be the 5th wave of a 5th
extension pattern; add [:L5] to the end of m1.

3. If m4 is less than 61.8% of m3, m1 is extremely unlikely to be the beginning of

Elliot wave pattern, place only “:c3/(:sL3)/(:s5)" at the end of m1.

Besides:
  If the end of ml is exceeded during the formation of m2, add an "x" in front
of ":c3".
 If waves from m3 through m5 do not achieve a price distance of 161.8% (or
more) of m1, drop ":sL3" from the list.

 If it takes less time to form m0 than m(-1) and m1, drop “:s5” from the list.

You should also note that if “:sL3” is used, the triangle (which concludes with m2) is
non-limiting.

4.  If none of the conditions above applies, place ":F3/:c3/:sL3/:s5" at the end of m1.

Besides:
 If the end of m1 is exceeded during the formation of m2, add "x:c3" to the
Structure list.
 If m1 is the longest when compared to m(-1) and m(-3), andm2 breaks a
trendline drawn across the low of m(-2) and m0 in a period of time equal to
or less than that taken by m1, add “[:L5]” to m1’s structure list.

 If m1 is shorter than m(-1), and m3 (plus one time unit) is completely

retraced faster than it took to form, drop ":c3" as a possibility.

 If m1 is less than 61.8% of m(-l), drop ":s5" from the list.

 If m4 is less than 61.8% of m3, remove “:sL3” from the structure list.

 If m2 (plus one time unit) is retraced slower than it took to form, drop ":sL3"
from the list.

Category iii. m3 is more than 261.8% of m2.

1. If m(-1) is more than 261.8% of m1, m1 can hardly be the last segment of any
Elliott formation. So, place only “:c3/:F” at the end of m1. If the end of m1 is
exceeded during the formation of m2, add an “x” in front of “:c3”.

2. If m(-1) is at least 161.8% of m1 and m0 is retraced slower than it took to form
and m1 takes 161.8% of the time of m0 (or more), the wave sequence m0-m2 must
form an irregular failure flat. In this case, place “:c3/(:F3)” at the end of m1.

However, if the end of m1 is exceeded during the formation of m2, add an "x" in
front of ":c3."

3. If m1 is the longest when compared to m(-1) and m(-3), andm2 breaks a trendline
drawn across the low of m(-2) and m0 in a period of time equal to or less than that
taken by m1, m1 may be the 5th wave of a 5th extension pattern, and so, add
"[:L5]" to the end of m1

4. If m4 is less than 61.8% of m3, m1 could hardly be the beginning of any Elliott
pattern. Place “:F3/:c3/(:s5)” at the end of m1.

Besides:
 If ":F3" is used, m1 must be the beginning of an elongated flat.
 If m1 is the longest when it is compared to m(-1) and m(-3), andm2 breaks a
trendline drawn across the low of m(-2) and m0 in a period of time equal to
or less than that taken by m1, m1 may be the fifth wave of a 5th extension
pattern; add [:L5] to the end of m1.

 If m0 takes less time than m(-l) and m1, drop ":s5" from the list.

 If the end of m1 is exceeded during the formation of m2, add an "x" in front
of ":c3."

5. If none of the conditions above apply, place “:F3/:c3/:sL3/:s5" at the end of m1.

Besides:
 If m1 is the longest when compared to m(-1) and m(-3), andm2 breaks a
trendline drawn across the low of m(-2) and m0 in a period of time equal to
or less than that taken by m1, add “[:L5]” to m1’s structure list.
 If m1 is less than 61.8% of m(-1) and/or the period of m0 formation is less
than the duration of m(-1) and m1, drop “:s5” from the list.

 If m4 is less than 61.8% of m3, drop “:F3” from the list.

 If the end of m1 is exceeded during the formation of m2, add an "x" in front
of ":c3”.

Let us see how the (b) condition of rule 4 works on the example.
Wave m2 is between 61.8% and 100% of m1. And so, the requirements of rule 4 are
met.

The length of m0 is 61.8% of m1. So, the (b) condition is relevant here.
Now, let’s pick up the relevant category. The length of m3 is within the range of
100% - 161.8% of m2. So, the i category of rule 4b applies to our case.

The m3 wave (the start is marked with the horizontal pink line in the chart) is
retraced during the time no longer than that it took to form. As it is difficult to
compare the period visually in this case, I marked the period of m3 with the red
area in the chart, and the period m2 took to form is marked with the green area.
So, paragraph 1 applies to our example. So, m1 could hardly be the final segment
of any Elliott pattern. We place “:F3/:c3” at the end of m1.

That is all for today. In the next educational article, I will continue explaining
retracement rule 4 based on Glenn Neely’s book Mastering Elliott wave.

Take care of yourself and your money! 

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Price chart of BTCUSD in real time mode

Periods
 M1
 M5

 M15

 M30
  H1

 H4

 D1

 W1

Zoom1D1W1M3M6M1YALL30. Nov14. Dec28. Dec11. Jan25. JanDec '20Jan '21F…

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