Basically, the whole secret can be summed up as:
For any final impulsive wave (5 or c) in larger wave series, the fourth wave must contain a retrending b wave (RTB).
What he means by a retrending b wave is that subwave b in wave 4 has to surpass the peak of the wave 3. Here is a graphical illustration of the idea:
In the traditional way of counting, there is a pattern called a failed wave 5 that happens at the end of a trend. The characteristic of a failed wave 5 is that the final impulsive wave is less powerful that a normal impulsive wave, and forms a momentum-losing pattern called the diagonal triganle (or the wedge in traditional technical analysis). In the new way of counting, the same pattern is relabeled so that wave 5 remains behaving like a normal impulsive wave.
In other words, the new rule changes the count of 5 of an impulsive wave into 7, i.e. from 1-2-3-4-5 to 1-2-3-4a-4b-4c-5.
In this new version of wave theory, there are two new characteristics which are not present in the original one:
1. Wave 4b - The Second Superhero
Even if you are not a fan of the Elliot wave theory, you might have heard about the saying that wave 3 is "a superhero of all waves", which means that the second impulsive in an impulsive wave series is usually the most powerful.
In the new theory, the retrending 4b can actually be as powerful if not more than wave 3. Here is an example:
Above is the M30 chart of Yahoo! Inc. (YHOO), under the new system of counting. As you can see, wave 4b is no less smaller than wave 3.
2. Wave 4c - The Super Villian
Well, if you call wave 3 a "superhero", then you have no choice but call wave 4c as a "supervillian". Why? Because wave 4c is a rapid countertrend move. And if it is not rapid, instead it may last very long. In any case it is very visible.
Look at the above chart again. Wave 4c is probably is largest countertrend move in the whole diagram. That's why Mr. Hennessy put it as, when you can see it, it's a c wave! Although this is not always found to be true, it is a good rule of thumb for wave identification.
To see a more complete example, here is a long term count on the weekly chart of GBPUSD, all the way from 1978:
So why bother going through so much changes in the wave theory? According to the author, the new way of counting has the following benefits:
- Extra labels of d, e, W, X and Y are no longer necessary.
- The possibility of extensions and failures (truncation) is eliminated.
- Alternative counts are less likely to be present.
In any case, for more information please visit the following page:
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