The NeoWave theory by Glenn Neely.

The third rule of retracement

proportions and the conditions to apply retracement rule 3

Dear friends!

We continue studying the rules of retracement based on the NeoWave theory

(based on the famous book by Glenn Neely Mastering Elliott Wave). Today, I am
going to explain the third Rule of Retracement. In one of the previous NeoWave
articles, I provided a table of rule identification, according to which, you can identify
the rule you need to apply to a particular market situation (read here).

If you are not familiar with the NeoWave theory, I strongly recommend you read all
the articles in the NeoWave series, based on Glenn Neely’s book Mastering Elliott
Wave, starting from the first one:

Neo Wave theory. Part 1. Rules for creating charts

Neo Wave theory. Part 2. Basic information on Polywaves and Structure Labels  

NeoWave. Part 3. Retracement Rule 1.

NeoWave theory. Part 4. Retracement Rule 2.

Rule 3

If m2 is moving in the opposite direction to m1, and m2 is 61.8% of m1. Such a rare
ratio indicates the boundary between impulsive and corrective movements, which
can make the determination of the structure m1 difficult. When you measure the
relation of m0 and m1, pick up one of the following conditions and mark the waves
with the corresponding structure labels.

Condition(a). m0 is less than 38.2% of m1. 

1. If m3 is more than 261.8% of m1, m1 most likely is the center element of a

running correction, but it could also be the end of a zigzag within a complex
correction. So, to take into account both alternatives, place ":c3/(:s5)" at the end of
m1. Remember, the base structure labels used in this article are covered in detail in
the second part.

Besides:

 If m(-1)is more than 161.8% of m1 remove ":s5" from the list.

  If m(-1) is less than 61.8% of m3, m2 may have completed more than one
Elliott pattern (each of a larger magnitude).

2. If m3 is between 161.8 and 261.8% (inclusive) of ml, ml may be the center portion
of an Impulse pattern with a5th wave extension, the center element of a running
correction (remember, a running correction is a flat correction and its b-wave is
much higher than the peak of the previous rise), or the first wave of an Elliott
pattern within a complex correction. So, place three alternatives ":s5/:c3/:F3” at the
end of m1 to list these three possibilities in their respective order.

Besides:

 If m1 is longer than m(-3), remove “:c3”

 If m(-1) is longer than m1, the label of “:s5” at the end of m1 means the c-
wave of a zigzag within a complex correction. So, m2 is most likely the x-wave
that can be followed by the a-wave of a contracting triangle.
3. If m3 is between 100% (inclusive) and 161.8% of m1, m1 may be the first element
of a base pattern that is a part of a Complex correction, or it can be the third wave
of an impulse price pattern with a 5th-wave extension orthe c-wave of a zigzag
within an ongoing complex correction. Place “:F3/:5/s5” at the end of m1.

Besides:

 If m4 is shorter than m3, remove “:F3”.

 If m0 form simultaneously takes less time than m(-1) and m1, drop “:s5” from
the list.
 If “:s5” is used and m(-1) is longer than m1, m1 may only be a c-wave of a
zigzag within a complex correction, and m2 will be an x-wave.
4. If m3 is shorter than m1 and is completely retraced faster than it took to form,
m3 may conclude an Impulsive or Complex Corrective pattern. So, place “:5/:F3”.

5. If m3 is shorter m1 and is completely retraced slower than it took to form, m1

concludes a zigzag which is a part of a complex correction. Place “:s5” at the end of
m1.

6. If m3 is shorter than m1, and m4 is shorter than m3, m1 may complete a zigzag
which is part of a complex correction or is a part of a terminal impulse pattern.
Place “:5/:F3” at the end of m1.

However, if m5 is longer than m3, remove “:F3” form the list.

In all the six cases, if m1 is longer than m(-1) and m(-3), and m2 breaks a trendline
across the lows m(-2) and m0 in a period of time equal or less than m1 took to
form, m1 could be the fifth wave of a 5th extension pattern. And so, add the
structure label “[:L5]” to the end of m1.

Let us study the (a) condition of rule 3 on the example.

First, let us see if the third rule is relevant in the given situation. As you see from the
chart, m2 is moving in the opposite direction to m1, and m2 is 61.8% of m1. I
marked the starting and the ending points with the red filled circle.
The m0 marked with the red line is less than 38.2% of m1. So, in this case, we apply
the (a) condition of rule 3.

Now, let us pick up the paragraph of the (a) condition that corresponds to our
situation. As m3 is shorter than m1 (price and time ranges are marked with red and
green areas), and its starting point (pink horizontal line) is reached much slower
than it took to form. So, the fifth paragraph of the (a) condition is relevant. So, m3 is
an element within a complex correction. We place “:s5” at the end of m1.

Condition (b). m0 is at least 38.2% but less than 61.8% of m1.

1. If m3 is more than 261.8% of m1, m1 most likely is the center portion of an

irregular failure (I will cover this pattern in detail in my next articles). It also could be
the end of a zigzag within a complex correction. Place “:c3/:s5” at the end of m1.

Besides:

 If m(-1) is more than 161.8% of m1, remove “:s5” from the structure list.
 If m(-1) is less than 61.8% of m3, m2 may conclude more than one Elliott
pattern (each of a larger magnitude).
2. If m3 is between 161.8 and 261.8% (inclusive) of m1, m1 may be the center
segment of an irregular failure, a c-wave of a zigzag within a complex correction or
the center element of a 5th extension terminal impulse pattern; place ":c3/:s5" at
the end of m1. A running correction and a terminal impulse are both marked with
the ":c3" while the ":s5" is used to mark a zigzag.
However, if m(-1) is longer than m1, the “:s5” label should be removed.

3. If m3 is at least 100% but less than 161.8% of m1, m1 may be the first or the last
element of a zigzag within a complex correction, or the central part of a 5th
extension terminal impulse pattern; place“:5/:s5/:c3” at the end of m1.

Besides:
 If m(1) is longer than m1, remove “:c3” from the list.
 If m(-1) is longer than m1 and m1 is labeled “:s5”, this wave is likely to be a c-
wave in a complex correction, and m2 will be an x-wave. So, place “x:c3?” at
the end of m2.

 If m4 is shorter than m3, drop “:s5” from the list.

 If m3 (plus one time unit) is completely retraced faster than it took to form,
drop ":5" from the list.

4. If m3 is shorter than ml andm3 (plus one time unit) is completely retraced faster
than it took to form, a complex correction may have concluded with m3; place ":5"
at the end of m1.

Besides, If m4 returns to the beginning of m(-1) within a period of time equal to50%
(or less) of that consumed by m(-l) through m3 andm(-l) is not more than 261.8% of
m1, m1 may be a part of a Terminal Impulse pattern; so, add ":c3" to the structure
list of m1.

5. If m3 is shorter than m1, and m3 is completely retraced slower than it took to
form, m1 is likely to conclude a zigzag within a complex correction, place “:s5” at the
end of m1.

6. If m3 is shorter than m1, and m4 is shorter than m3, m1 may be the final
element of a zigzag within a complex correction, or it is a part of a terminal impulse
pattern. So, add “:5/:F3” to the structure list.

However, if m5 is longer than m3, remove “:F3” from the list.

Let us see how the (b) condition of the third rule is used on the example.
The requirements of the third rule are used, as m2 is 61.8% of m1.

Wave m0 is more than 38.2% but less than 61.8% of m1. So, the (b)condition of rule
3 is relevant here.
Now, let us identify which paragraph of the (b) condition is met. The price range of
m1 is 314 points (green area in the chart), and m3 is 262 points (the red area in the
chart). As m3 is shorter than m1, and its starting point (the pink line) is reached in a
period of time longer than that m1 took to form, m1 is likely to conclude a zigzag in
a complex correction. So, we add “:s5”. Besides m4 is much shorter than m3, m1
might be the final element of a zigzag within a complex correction or the terminal
impulse pattern. So, we add the structure label of “:F3”. However, m5 is longer than
m3, so, “:F3” must be dropped out.

Condition (c). m0 is at least 61.8% but less than 100% of m1.

1. If m3 is more than 261.8% of m1, m2 is likely to terminate an irregular failure flat
or a non-limiting triangle, add “:c3/:sL3” at the end of m1.

Besides:
 If m(-1) is more than 161.8% of m1, drop ":sL3" from the list of Structure
possibilities.
 If m(-1) is not more than 161.8% of m1, andm(-2) is at least 61.8% of m(-l),
drop ":c3" from the Structure list

2. If m3 is between 161.8% and 261.8% (inclusive) of m1, m1 may be the central
element of an irregular failure flat (I will cover this pattern in detail in my next
training articles, until then, treat it as an ordinary flat), the second-to-last wave of a
contracting triangle or apart of a complex correction; place ":F3/:c3/:sL3/:s5" at the
end of m1.

Besides:
 If m3 (plus one time unit)is completely retraced faster than it took to form,
drop ":s5" from the above list.
 If m(-1) is more than 161.8% of m1, remove ":sL3" from the above list.

 If m(-1) is not more than 161.8% of m1, drop ":c3" from the above list.

 If m4 is shorter than m3, remove ":F3" from the list.

3. If m3 is at least 100% but less than 161.8% of m1, m1may be the center segment
of an irregular failure flat, the second-to-last segment of a contracting triangle, the
center part of a 5th extension terminal pattern or one of the monowaves of a
complex correction; place ":F3/:c3/:sL3/:s5" at the end of m1.

Besides:

 If m4 is shorter than m3, drop ":F3" from the list.

 If m3 (plus one time unit) is completely retraced faster than it took to form,
remove ":s5" from the above list.
 If m(-1) is more than 161.8% of m1, exclude ":sL3" from the above list.
 If m(-1) is not more than 161.8% of m1 drop ":c3" from the above list.
4. If m3 is shorter than m1 andm3 (plus one time unit) is completely retraced faster
than it took to form, m3 is likely to end a terminal impulse or complex correction.
Put “:c3/:F3” at the end of m1.

However, if m(-1) is less than 138.2% or more than 261.8% of m1, the ":c3" becomes
very improbable, place brackets around it - "[:c3]."

5. If m3 is shorter than m1, and m3(plus one time unit) is completely retraced
slower than it took to form, m1 may be an a-wave of a zigzag or a c-wave of a zigzag
within a complex correction. Place “:F3/(:s5)” at the end of m1.

However, if m5 (plus one time unit) is completely retraced by m4 faster than m4

took to form, remove “(:s5)” from the structure list.

6. If m3 is shorter than m1, and m4 is shorter than m3, m1 may be the final
segment of zigzag or a flat within a complex correction, or it may be the center
segment of a running contracting triangle or the first wave in a terminal impulse
pattern. So, place “:s5/:c3/(:F3)” at the end of m1.

Besides:
  If m5 is longer than m3, remove “:F3” from the list.
 If m(-1) is more than 261.8% of m1, drop “:s5” from the above list.
Let us see how the (c) condition of the third rule works out on the example.

The requirements of the third rule are fulfilled, as m2 is 61.8% of m1.

The m0 is a complex wave that is a little less than 100% of m1. So, the (c) condition
is applied to this case.
The length of m3 is a little more than 100% 0f m1 (I marked the start and the end of
this wave with red filled circles), and so, according to paragraph 3 of the (c)
condition, m1 may be the center portion of a contracting triangle, the central
segment of the of a 5th extension terminal pattern or one of the waves of a
complex correction. Therefore, we place “:F3/:c3/:sL3/:s5” at the end of m1.

As m4 is shorter than m3, we drop “:F3” from the list. As m(-1) is not more than
161.8% of m1, we should remove “:c3” form the list. So, finally, the structure list of
m1 is “:sL3/:s5”.

Condition (d). m0 is at least 100% but less than 161.8% of m1.

1. If m3 is more than 261.8% of m2, m1 is likely to be the first segment of a zigzag,
the central part of a c-failure flat, or a second-to-last wave in a triangle; place
“:5/:c3/(:sL3)” at the end of m1.

Besides:

 If m(-l) is less than 61.8% or more than 161.8% of m0, drop "(:sL3)" from the
Structure list.
 If m2 is retraced slower than it took to form, drop "(:sL3)" and ":c3" from the
list.
 If m3 is more than 161.8% of m1, drop ":5" from the list.
2. If m3 is between 161.8 and 261.8% (inclusive) of m2, m1 may be the center
section of a c-failure flat, the second-to-last leg of a contracting triangle or the first
leg of a zigzag.

If so, place “:c3/:sL3/:5” at the end of m1.

Besides:

 If m3 (plus one time unit)is completely retraced faster than it took to form,
drop ":s5" from the above list.
 If it is less than 38.2% of the total length of m(-3)–m0, remove “:sL3” from the
list.
 If m1 is more than 38.2% but less than 61.8% of the total length of m(-3)–m(-
1), place the brackets around “:sL3”, the “(:sL3)” means that this scenario is
improbable.
 If m(-1) is between 61.8% and 161.8% of m0, remove “:c3” from the list.
 If m4 is less than 61.8% of m0, place parentheses around ":5" to indicate its
lower probability.
3. If m3 is at least 100, but less than 161.8% of m2, m1 is probably the first segment
of a zigzag, but it may be in a triangle; place ":5/(:c3)/[:F3]" at the end of m1.

Besides:

 If m3 is at least 100, but less than 161.8% of m2, m1 is probably the element
leg of a zigzag, but it may be in a triangle; place ":5/(:c3)/[:F3]" at the end of
m1.
 If m4 is shorter than m3, and m5 retraces m4 faster than m4 took to form,
andm5 is equal to (or longer) and more vertical than m1, remove ":5" from
the list.
Let us see how the (d) condition of the third rule works on the example.
Wave m2 is 61.8% of m1, which is an element of a complex wave, it is marked with
red filled circles. So, the requirements of the third rule are met.

The m0 is more than 100% but less than 161.8% of m1. So, in this case, the (d)
condition is applied.
The length of m3 is between 161.8%–261.8% of m2. So, our case refers to
paragraph 2 of the (d) condition, and so, we place “:c3/:sL3/:5” at the end of m1.

According to the rules described in paragraph 2, as m(-1) is between 61.8% and

161.8% of m0, which is clear from the chart, we place “:5” in a parenthesis.

Condition (e). m1 is between 161.8% and 261.8% of ml (inclusive).

1. If m3 is more than 261.8%of m2, m1 is likely to be the first segment of a zigzag,
the center section of a c-failure flat which concludes a complex correction (with a
"missing" x-wave in the middle of m0), orthe second-to-last leg of a triangle; place
":5/:c3/(:sL3)" at the end of m1.

Besides:
 If m(-1 ) is less than 61.8% or more than 161.8% of m0, drop "(:sL3)" from the
Structure list.
 If m2 is retraced slower than it took to form, drop "(:sL3)" and ":c3" from the
list.

 If m3 is more than 161.8% of m1, remove ":5" from the list.

2. If m3 is between 161.8 and 261.8% (inclusive) of m2, m1 may be the first element
of a zigzag or the center section of a c-failure flat, which concludes a complex
correction (with a missing x-wave in the middle of m0). 

So, place “:5/:c3” at the end of m1 and put a dot in the middle of m0 with "x:c3?" to
the right and ":s5?" to the left of the dot.

Besides:

 If m2 is retraced slower than it took to form, drop ":c3" from the list.
 If m3 is more than 161.8% of m1, drop ":5" from the list.
3. If m3 is at least 100%, but less than 161.8% of m2, m1 may be the first segment
of a zigzag or the first element of a triangle; place ":5/(:F3)" at the end of m1.

However, if m4 is a monowave, and m4 is longer than m3, remove “(:F3)” from the
structure list.
Let us see how the (e) condition of the third rule works on the example.
Wave m2 is 61.8% of m1. So, the requirements of retracement rule 3 are met.

Wave m0 is between 161.8% and 261.8% of m1. So, in this case, the (e) condition is
relevant.
In our case, m4 is between 100% and 161.8% of m2. So, there is applied paragraph
3 of the (e) condition and m1 may be the first leg in a zigzag or triangle. We place
“:5/(:F3)” at the end of m1.

Condition (f). m0 is more than 261.8% of m1.

1. If m3 is more than 261,8% of m2, m1 may be the first element of a zigzag or the
center section of a c-failure flat which concludes a complex correction (with a
missing x-wave in the middle of m0). If so, place ":5/(:c3)" at the end of m1.

Besides:

 If m2 is retraced slower than it took to form, drop ":c3" from the list.
 If m3 is more than 161.8% of m1, drop ":5" from the list.
 If the "(:c3)" Structure label is used for m1 and m(-1) shares no similar price
territory with m1, mark the middle of m0 with a dot and place "x:c3?" to the
right of it and ":s5" to the left of the dot to represent m0's missing x-wave
possibility
2. If m3 is between 161.8 and 261.8% (inclusive) of m2,m1 may be the first segment
of a zigzag or the center section of a c-failure flat which concludes a complex
correction (with a missing x-wave in the middle of m0). So, place ":5/(:c3)" at the end
of m1.

Besides:
  If m3 is more than 161.8% of m1, remove “:5” from the list.
 If m3 is longer than m2 slower than m2, drop “:c3” from the structure list.
 If the "(:c3)" Structure label is used for m1, and m(-l) shares no similar price
territory with m1, mark the middle of m0 with a dot and place "x:c3?" to the
right of it and ":s5" to the left of the dot.
3.  If m3 is at least 100% but less than 161.8% of m2, m1 may be the first element of
a zigzag or the first segment of a triangle; place ":5/(:F3)" at the end of m1.

However, if m4 is a monowave, andm4 is longer than m3, drop "(:F3)" from the
Structure list.

Unfortunately, the (f) condition is very rare, so I haven’t found a relevant example
on the BTCUSD chart.

That is all for today. In the next training article, we continue studying Glenn Neely’s
NeoWave theory, and I will cover the retracement rule four and its conditions.

Take care of yourself and your money! 

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Price chart of BTCUSD in real time mode

Periods
 M1
 M5

 M15

 M30

 H1

 H4

 D1

 W1

Zoom1D1W1M3M6M1YALL30. Nov14. Dec28. Dec11. Jan25. JanDec '20Jan '21F…

15k20k25k30k35k40k45k

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