A complete market movement consists of five waves, and five waves of the same level will constitute a wave head of the next larger level.
In this article I will introduce the basic characteristics of wave motion.
Waves 135 move in the same direction as the main wave, while waves 24 move in the opposite direction. Wave 2 is a retracement of wave 1. Wave 4 is a retracement of wave 3. The difference between the main direction wave and the reverse direction wave is that the former can be decomposed into secondary waves 5 while the latter can only be decomposed into secondary waves 3.
To further understand these characteristics, let’s analyze the trend type in the figure below. In this complete wave 5 movement
Wave 2 and wave 4 are composed of three smaller waves. They are defined as ABC waves. (It is just a reference. It can also be other forms. Here we just follow the majority.)
A complete round of trend consists of 8 waves, among which 12345 are rising waves and ABC are adjustment waves.
According to the basic rules, wave 2 will not knock out the starting point of wave 1. Knocking it off means that it cannot be wave 1. The retracement range of wave 2 is generally 0.382, 0.3618, or 0.5 of wave 1. There are various types of adjustments for wave 2, most of which are single zigzag types. I will talk about single zigzag later.
Wave 3 must exceed the top of wave 1. In general, the amplitude of wave 3 is 100% of wave 1. 1.618 - 1.382. This depends on the combined force of the market. In the bull market cycle, the main rising wave 3 is generally an extended wave. The limit of wave 3 is 5 times that of wave 1.
Wave 4 is a response to the retracement of Wave 3. It will definitely not break through the bottom of Wave 3. Traders in the general market believe that if Wave 4 retraces 70% of Wave 3, it will be a failed driving wave. However, if it is applied in the Bitcoin market, I think it is better to knock off the starting point of Wave 3 and then negate it. The adjustment trend of Wave 4 is mostly double sawtooth and triangle. (These patterns will be discussed later)
Wave 5 is generally the last rising wave structure in the main rising wave. The internal structure is a driving wave, which is the 12345 sub-level sub-wave.
Wave 5 is usually accompanied by acceleration and volume. The amplitude is 0.618 of Wave 3. 1.618. This depends on the trend type of Wave 3. Assuming Wave 3 is an extension of Wave 3, then Wave 5 will probably not go very far. The goal of Wave 5 is to knock off the top of Wave 3 to ensure that Wave 5 can be completed at any time.
ABC is to deal with the retracement of the 12345 rising wave. The adjustment trend is complex and numerous. The simple example is single sawtooth
Double serration Triple serration Platform Triangle.
I will talk about adjustment waves later. In this section, I will only talk about the basic rules.
