Wave (iii) targets

Wave (iii) targets

Once Wave (i) and Wave (ii) have been established the immediate task is to identify where Wave (iii) will probably end. After all, there are multiple projections that could occur. Most common are 176.4%, 185.4%, 223.6% and in stronger moves 276.4% and 285.4%.

There are several elements to this, and I shall cover each in turn.

The Wave Structure of One Higher Degree

A Wave (iii) only occurs in two waves: Wave (A) or Wave (C).

The positions of Waves (A) and Wave (C) generate different implications and may occur within:

• Wave (i), Wave (iii), Wave (v);
• a Zigzag, Double Zigzag, or Triple Three;
• a Triangle.

Wave (A) will always follow Wave (C). Wave (C) will always end in a Wave (v).

Wave iii of Wave (a) in Larger Wave (i)

A common initial target following the completion of a Wave (v) will be the Wave (b) of Wave (v). This may be the new Wave i, Wave iii, or indeed the full Wave (a). The target for Wave iii should therefore be considered within this structure.

Wave (iii) of Wave (a) of Wave (III)

There is no universal guideline for this and it will depend on exactly what is happening in the larger wave degree. The more important guide will be the expectation of where Wave (A) is to end, which in turn will provide an idea of where the Wave (a) of Wave (III) will need to complete to be within striking distance for Wave (v) to reach the target.

In Figure 5.8, I will show an example of how this may be achieved.

Figure 5.8 Wave (IV) Correction in Hourly USDCAD

In Chapter 3 I provided an example of a deep Wave -b-of Wave -iii-within a Wave (c) higher in USDCAD. This was within a Wave (IV) of one higher degree. In Chapter 4 I demonstrated the amazing accuracy and synchronicity of the final (a)(b)(c) waves.

The first problem to be considered is whether this actually completed Wave (IV). The recovery from 1.0062 developed in a Double Zigzag. If this represented a full 50% or perhaps 58.6% retracement in Wave (IV) then it would be a clearer implication that the 1.0301 high was indeed Wave (IV). In this instance the 50% retracement was at 1.0317. This was also around where two prior corrective highs were situated in the Wave (c) of Wave (III) decline. The Wave (II) retracement was 41.4%.

Therefore, this case was not a clear-cut certainty that a third ABC structure would not occur. A move below the prior Wave (b) at 1.0169 would assist that view, and also below the prior Wave (x) at 1.0150 being another key swing low. The market tends to avoid breaking key swing highs/lows on the first test and therefore some reactions should be expected. The guideline of a reaction from the prior Wave (b) would also be a factor. Therefore the approach to this general area will need to be observed in order to assess whether the decline was developing in line with what should be a Wave (A) of Wave (V) if this was to confirm whether the Wave (V) would develop rather than a Wave (x) and followed by a third ABC rally.

If this is the start of a Wave (V) then normally Wave (A) will stall somewhere in the region of the Wave (III) low. This would provide a general idea where Wave (iii) of Wave (A) needs to fall to allow Wave (v) to reach the area around the Wave (III) low.

Figure 5.9 displays how the first decline develops. The chart displays the final Wave -c-of Wave -iii-from the deep Wave -b-, followed by the three-wave rally in Wave -v-. In either a Wave (x) correction that would lead to a new ABC structure higher in Wave (IV) or a five-wave decline in Wave (A), the first development must be an ABC move.

Figure 5.9 Initial Decline from the 1.0301 Peak in Five-Minute USDCAD

As should be expected, the initial decline in Wave -a-reached the area of the prior Wave iv and Wave b of Wave v. Identifying the five waves in Wave -a- (and therefore the Wave iii) in a five-minute chart is normally impossible. Wave -b-then followed, and then five waves in Wave -c-to reach the prior Wave -b-of Wave -v-higher and just below but holding above the prior Wave -iv-. Wave -c- was just over 223.6% of Wave -a-. This was at 1.0245.

At this point there is no way of knowing precisely whether this decline formed Wave (I) of Wave (A) or whether it was a pullback in Wave (x), or perhaps just one ABC decline within a Wave (x). The recovery from the 1.0245 Wave -c-low ended between the 41.4% and 50% retracement at 1.0270 and between the prior Wave b of Wave v and the peak of Wave iv.

The next move should define the structure of the decline. For this to be a Wave (x) the next three-wave decline must see the Wave C below the 1.0245 low unless it was to turn into a complex correction in Wave (x).

If this was to be Wave (a) of Wave (III) then the next move should be five waves lower in Wave (a). It should also test the prior Wave (b) at 1.0169 and possibly the 1.0150 prior Wave (x). This would enable a retracement in Wave (b) and extension in Wave (c) of Wave (III) to reach closer to the prior higher degree Wave (III) low at 1.0062. To identify where Wave -iii-should stall the projections for Wave -iii-should be observed in conjunction with those of Wave -c- (once Wave -b-had been completed).

Wave -c-projections:

85.4% = 1.0222

100.0% = 1.0217

114.6% = 1.0212

123.6% = 1.0210

 138.2% = 1.0205

161.8% = 1.0198

Wave -iii-projections:

176.4% =    1.0235

185.4% =    1.0233

223.6% =    1.0227

261.8% =    1.0220

285.4% =    1.0216

423.6% =    1.0193

From these we could consider a potential target around 1.0216-20.

In fact, what transpired was Wave -in-measuring a rather unusual 376.4% projection of Wave -i-and Wave -c-of Wave -iii-being 161.8% of Wave -a- reaching 1.0200. This begins to highlight the issue of also identifying the individual wave structure of Wave -c-.

Wave -iv-was then two points above a 41.4% retracement of Wave -iii-and Wave -v-was precisely 76.4% at 1.0176. This was perfect in terms of the retest of the prior Wave (b) in Wave (IV) higher. Thus this could now be confirmed as a developing Wave (A) lower, and the next step was to identify a correction in Wave (b) and then extension in Wave (c) to complete Wave (III).

The next step would be to identify an approximate target for Wave (III) from where a Wave (IV) retracement would develop and provide somewhere between a 61.8% and 76.4% (or possibly an extended wave of 85.4%) to reach close to the 1.0062 low.

Wave (III) projections:

176.4% = 1.0171

185.4% = 1.0166

223.6% = 1.0145

261.8% = 1.0123

285.4% = 1.0110

Since Wave (a) had reached 1.0176, the first two projections can be ruled out. The 223.6% projection at 1.0145 may well be possible, as well as the 261.8% projection at 1.0123. The 285.4% is rather deep but shouldn't really be ruled out.

Next the retracements in Wave (b) can be derived:

38.2% = 1.0212

41.4% = 1.0215

50.0% = 1.0223

58.6% = 1.0231

Note should be taken of the prior Wave -b-of Wave -v-and also the Wave -iv-. These were at 1.0229 and 1.0222. This would lead to the favored retracement being between 1.0212 and 1.0223.

The recovery from 1.0176 reached 1.0221 and thus two points below the 50.0% retracement (see Figure 5.10). Compared to the decline in Wave (a) it was quite brief, but the likelihood is that it would be considered as Wave (b).

Figure 5.10 Wave (c) Decline in Wave (III) in Five-Minute USDCAD

From that peak the wave development became more uncertain. I have marked a five-wave decline which did hold quite good relationship ratios. However, the low was at 1.0156 and above the prior swing low at the 1.0150 Wave (x). This does not satisfy a Wave (III) target.

The possibility of these being a mistake in the bearish wave count should be considered, although the breach of the prior Wave (b) is normally (but not always) a sign that there has been a reversal.

On a closer look there was a secondary wave count that implied a three-wave decline with the alternative Wave -c-being 85.4% of Wave -a-. It is also therefore possible that this is an Expanded Flat. If so, the 1.0156 low should represent an expansion of the alternative Wave efa. Indeed, this was a 41.4% expansion which would imply a five-wave rally in Wave efc to around the Wave efa high. This occurred with the Wave efc stalling at 1.0214, and this would then be counted as Wave (b).

A target in Wave (c) could then be calculated:

85.4% = 1.0134

100.0% = 1.0120

114.6% = 1.0106

Matching with the projections anticipated in Wave (III) between 1.0212¬1.0223, it would appear that Wave (c) would also likely stall in the same area. The five waves lower developed with normal ratios to reach 1.0125.

Wave (IV) developed with an almost 50% retracement to 1.0195.

Finally, this allowed targets for Wave (V):

61.8% = 1.0086

66.7% = 1.0078

76.4% = 1.0061

The Wave (III) low of one higher degree was at 1.0062 and the Wave (V) to complete Wave (A) completed at 1.0065 (see Figure 5.11).

Figure 5.11 Wave (V) Decline in Wave (A) in Five-Minute USDCAD

This walk-through demonstrates the technique of estimating the Wave (iii) targets, both internally from the Wave (c) target within Wave (iii), and also as a projection of Wave (i) and a general expectation of where a Wave (iii) should fall if the target in the Wave (A) or Wave (C) is to be achieved.

This process provides several factors in bringing confidence to the expected wave count or whether it begins to break down: 

• A move will always be expected in either five waves or three waves, dependent on the location within the larger wave count.
• The early stages can be linked to the prior Wave (b) and/or Wave -b-of Wave -iv-of the preceding move. Estimates can be made for the general area where Wave (iii) should be expected to end.
• If a five-wave move is anticipated then there should be valid relationships between them. If not, then an alternative structure may be developing.
• Relationships between Wave (i), Wave (iii), and Wave (v) need be confirmed by projections of the internal Wave abc.
• The general adherence to ratios normally provides excellent break levels to the anticipated wave count. For example, if a Wave iii reaches a common expansion ratio in a possible complex correction then this can be highlighted by a break through the anticipated Wave iv retracement.