Wave 4, the Ambitious

Second time in a row I get tricked by a Wave 4 to believe that it was over already. Needless to mention, this throws off the wave count.

I made this image yesterday.

I put a #5 where I should had put a “b”.

And that previous Wave 4 with its a-b-c was also longer than anticipated.

You see, Wave 2’s RSI2 extreme is the reference to the end point of Wave 4. Since Wave 3 has a tendency to expand on volatility, Wave 4 may end up showing up as three legs while the volatility starts contracting again.

The red circle shows the end of Wave 4’s A leg beating the reference reading of Wave 2, but also maxing out. At the same time, E16 (in blue) was deeply undercut (by more than 9 pips).
The Orange Oval are the ending, divergent thrusts of the C leg of Wave 4.
Wave 5 used the reference point of Wave 3, but it also went out on a limb by maxing out on the first try (Whoop). The “within six” reading should arrive in the right rhythm: on Boogie.

From what I see here, I can say that if the Wave 4 ends up violating E16, then you can expect one more leg out of it. One sign, that a follow-up is likely, that the RSI2 hits its limit on the pullback (0 or 100 on RSI2 30 min).

Another symptom of the 3 legged correction is that the 3rd leg takes a lot shorter time to print, because most of the orders already got filled on the first leg in the overlapping area.

In closing, I would like to share a few things about trend lines.

  1. Avoid connecting the maxed out RSI2 readings

2. Using two colors can help you grasp the following thinking: when price is above the red line, it is in break out mode: trading above resistance. When price is trading below the green line, it is trading below support.

3. Trend lines can keep you in a trade longer, so it is beneficial to plot them.

4. Why don’t you make the plots automatic?

The gray ones are not “valid” trend lines, they are time out ones, which means that there were only 5 trend lines were printed in the last 3 days.