32 Points

40 Points

Illustration 3-12A

llustration 3 12j

Illustration 3-13

First, a retracement wave cannotgo below a previous retracement wave and both be part of the same group of retracement waves. Going back to Illustration 3-12B, the third retracement is below the second retracement; thus, these two retracements cannot be grouped together. Illustration 3-13 demonstrates the proper wave count. Second, the 20% rule is calculated from the original wave (wave number two) that the symmetry wave count stattsfrom. Otherwise, there would be ever shrinking or expanding waves which vrould destroy symmetry. To further clarify the 20% rule, two more examples will be used. The second retracement is 20% smaller than the first retracement, and the third retracement is 20% smaller than the second retracement, this renders retracement three 35% smallerthan retracement one and makes these waves asymmetrical (see Illustration 3-14).

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Illustration 3-14

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Illustration 3-1S

Conversely, the same problem wrxild apply to expanding each subsequent waves magnitude by 20%. The third retracement ends up being 44% greater than the first retracement (see Illustration 3-15). Again, the key is that a group of waves should be symmetrical to each other.

Illustration 3-16 uses a weekly Deutsche Mark chart to furlher illustrate the pro[x;rgrouping of symmetry waves. All four levels of hierarchy are used in this chart. By using the Symmetry Wave Method, thepos.sibilityofconfusing different magnitudes of waves, such as 1, II, 111, IV, and V waves with (1), (2), (3), (4), and (5) was e! iminated. In mid-1989, waves I and 11 were developed. Following the rules of the Symmetry Wave Method, we can expect a wave IV that would match wave II in magnitude. This knowledge helps us keep the proper wave count and keeps us with the major op trend, Between waves II and IV, there were several sets of smaller symmetrical waves.

Illustration 3-17, the daily bar chart of U.S. Treasury Bonds, starts an uptrend late in " September of 1990. The first retracement, wave 2, is approximately 90 points in size; therefore, t as the m.irkoi develops, expect a syrnme.triral rettarenieni wave 4 which will m.itch wave 2. The

smaller set of five waves (1, 2, 3,4, 5) is followed by a larger retracement wave (2), and now we can expect a retracement wave (4) thai will match in magnitude the reitacernent wave (2).

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Illustration 3-17

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Failure Wave

in the above illustration, the smaller set of wave counts ended with a failure wave.

Failure wave, also known as failure swing, is the term used when a wave fails to exceed a previous wave (wave 5 failed to exceed wave 3) (see Illustrations 3-18 and 3-19). A failure wave is a common occurrence and often brings about confusion rather than a solution. Some people feel that a failure wave during an uptrend is a sign of weakness and, conversely, a sign of strength during a downtrend. Research has shown failure swings to be about 50% accurate in predicting a trend reversal.

Illustration 3-18

Illustration 3-19

During failure waves it is important to look at the entire size of a wave and not to measure the magnitude of a retracement from where the failure wave ended (see Illustrations 3-20 and 3-21).

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Illustration 3-?0

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Illustration 3-21

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No Matching Symmetry Wave

smaller set of symmetrical waves is always found inside a bigger set of waves, as seen in previous iikistrations. Illustration 3-22 depicts the wrong way of trying to group retracement waves. The two smaller retracements before and after the bigger retracement wave 4 cannof be grouped together. That is to say, there cannot be intervening bigger waves between a set of smaller waves.