In my previous post, I wrote about the Principle of Alternation as it relates to the extension of Wave 3 and Wave 5. While this relationship can add confidence or lack thereof in the staying power of the MOB, the Principle of Alternation also relates to other parts of the wave structure.
In this post, I wanted to illustrate some of the key relationships between the corrective nature of Wave 2 and Wave 4. The main idea of this relationship is that when Wave 2 is short, aggressive and linear, then we should anticipate Wave 4 to be long, subtle and complex. This relationship helps the trader anticipate and in a sense time the market for clear pullback before initiating the trade. On the other hand, when Wave 2 is long and drawn out, we should anticipate Wave 4 to be aggressive and short lived.
In the following examples, I've highlighted the number of bars required to build the Wave 2's and a comparable look at the time required to build the corresponding Wave 4's. While each chart will obviously have its own characteristics, this rule of thumb can help in looking for specific wave behavior and the type of pullback the corrections should take on.
Trade Smart...
~Duane Gott
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