Wave 4 as a support area and all three aspects of wave theory
WAVE 4 AS A SUPPORT
AREA
In
concluding our discussion of wave formations and
guidelines, one important point remains to be mentioned,
and that is the significance of wave 4 as a support area
in subsequent bear markets. Once five up waves have been
completed and a bear trend has begun, that bear market
will usually not move below the previous fourth wave of
one lesser degree; that is, the last fourth wave that
was formed during the previous bull advance. There are
exceptions to that rule, but usually the bottom of the
fourth wave contains the bear market. This piece of
information can prove very useful in arriving at a
maximum downside price objective.
COMBINING ALL THREE
ASPECTS OF WAVE THEORY
The
ideal situation occurs when wave form, ratio analysis,
and time targets come together. Suppose that a study of
waves reveals that a fifth wave has been completed, that
wave 5 has gone 1.618 times the distance from the bottom
of wave 1 to the top of wave 3, and that the time from
the beginning of the trend has been 13 weeks from a
previous low and 34 weeks from a previous top. Suppose
further that the fifth wave has lasted 21 days. Odds
would be pretty good that an important top was near.
A
study of price charts in both stocks and futures markets
reveals a number of Fibonacci time relationships. Part
of the problem, however, is the variety of possible
relationships. Fibonacci time targets can be taken from
top to top, top to bottom, bottom to bottom, and bottom
to top. These relationships can always be found after
the fact. It's not always clear which of the possible
relationships are relevant to the current trend.
Wave 4 as a support area and
all three aspects of wave theory
