NeoWave theory by Glenn Neely.

Retracement rule 5 and the conditions

“a” and “b” to apply it

Dear friends!

Today, I will explain the retracement rule five.

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.

NeoWave theory. Part 5. Retracement Rule 3.

NeoWave. Part 6. Retracement rule 4. Conditions “a” and “b”

NeoWave. Part 7. Retracement rule 4. Conditions “c”, “d” and “e”

Rule 5

The retracement rule 5 will apply if m2 is moving in the opposite direction relative
to m1, and m2 should be at least 100% but less than 161.8%. After measuring the
relation between m0 and m1, pick up one of the below conditions and mark the
waves with the relevant structure labels.

Condition (a). m0 is less than 100% of m1

This condition covers two options:

1. If m2 is composed of 4 monowaves or more.

2. If m2 is composed of 3 monowaves or less.

1. If m2 is composed of more than three monowaves.

1. If the first three monowaves of m2 are not more than 61.8% of m1, the first or
the second monowave (emerged immediately after m1) may start a Complex
Correction. Besides, the monowave that starts the correction should be moving in
the opposite direction of m1; it may be an x-wave or contain a "missing” x-wave or
"missing" b-wave in its center. The wave m1 can also be the third wave of an
impulse a 5th-Failure Impulse pattern (Trending or Terminal). In this case, place
“:5/:s5” at the end of m1.

Besides:
 If the total length of the monowaves following m1 is at least 25% of m1, add
“:F3” to m1’s structure list.
 If the x-wave is missing, circle the center of m1 and place “:s5?” to the left of
the circle, and “x:c3?” to the right of it.

 If the variant of the missing b-wave is considered, circle the center of m1 and
place “:5?” to the left of the circle, and “b:F3?” - to the right of it. In this case,
the termination of the Complex Correction will be confirmed immediately
before the point where the market violently turns (in the opposite direction
of ml) and exceeds the 61.8% retracement level of m1.

2. If the first three monowaves of m2 retrace more than 61.8% of m1, m1 may
complete an a-wave of a flat with a complex b-wave, or m1 may complete the third
wave of a 5th Failure Impulse pattern. Therefore, place “:F3/:5” at the end of m1.

2. If m2 is composed of three monowaves (or less), or m2 is a monowave.

1. If m1 (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, andm(-2) and m0 do not share any similar price range,
andm2 is larger than m(-2), andm(-2) and m0 are obviously different in price or time
or both, andwhen the price lengths of m(-3), m(-1 ) and m1 are compared, m(-1) is
not the shortest, m1 may conclude a trending impulse pattern. In this case, place
“:L5” at the end of m1.

2. If m1 (plus one time unit) is retraced in the same amount of time (or less) that it
took to form, and m2 is longer than m(-2), and m(-4) is longer than m(-3), m1 may
be the final segment of a zigzag or a flat. So, place “:L5” at the end of m1.

3. If ml (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, andm2 is longer than m(-2), and m(-3) is longer than m(-2),
andm(-4) is shorter than m(-3), m1 may be the end of a standard Elliott pattern
which is part of a complex correction, where m(-2) is an x-wave. In this case, place
":L5" at the end of m1, and "x:c3?" - at the end of m(-2).
Under the above conditions, if m(-1) is at least 161.8% of m0, the standard
correction unfolding is probably a zigzag. If m(-1) is at least 100% but less than
161.8% of m0, the standard correction is likely to be a flat.

4. If m1 (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, andm2 is smaller than m(-2), m1 may conclude a flat or
zigzag. Place ":L5" at the end of m1.

5. If m1 (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, andm(-2) is smaller than m(-1), and m(-1) is not the
shortest when compared to m(-3) and m1, andm2 is not retraced more than 61.8%,
and the market approaches (or exceeds) the beginning of m(-3) within a time period
which is 50% or less of that consumed by m(-3) through m1, andthe end of m1 is
not exceeded for a period which is four times as long as that consumed by m(-3)
through m1, andtheprice coverage of m2 through m4 is at least twice that of m1,
andone of m(-1)'s possible structure labels is ":c3", m1 may finish a
terminalimpulse. So, add ":L3" to the current structure list of m1.

6. If m1 (plus one time unit) is retraced in the same period of time (or less) that it
took to form, and m3 is between 61.8% and 100% of m1, m1 may be an element of
an irregular failure flat. And so, place “:F3” at the end of m1.

7. If m1 (plus one time unit) is retraced in the same period of time (or less) that it
took to form, and m3 is longer than m2, and m0 is at least 161.8% of m2, and m3 is
retraced in the same period of time (or less) that it took to form, m1 may a part of
an irregular flat. Place “:F3” at the end of m1.

8. If m1 is completely retraced slower than it took to form, and m2 did not retrace
more than 61.8% of the distance from the beginning of m(-1) to the end of m,1 and
m3 is shorter than m2, m1 may conclude a complex correction. Besides, m1 will be
the most extreme price reached by the market for a period at least twice that of the
combined times of the group of waves m0-m2. Place ":F3" at the end of m1.

9. If m1 is completely retraced slower than it took to form, and m3 is longer than

m2, and m2 is not more than 61.8% of the price distance from the beginning of m(-
l) to the end of m1, then the market could be forming a complex correction or an
expanding triangle. In the first case, m1 would be the end of one corrective phase
of the pattern and m2 is likely to be the end of an x-wave. Add ":F3/:c3/:L5" to the
structure list of m1.

10. If m1 is completely retraced slowerthan it took to form, and m2 is shorter than

m(-2), m1 may be the final segment of a zigzag, which is part of a contracting
triangle. Place ":L5" at the end of m1.
11. If m1 is completely retraced slowerthan it took to form, andm(-1 ) is atleast
61.8% of m1, andm3 is smaller than m2, andm3 (plus one time unit) is completely
retraced in the same amount of time (or less) that it took to form, m1 may be a part
of a flat, which concludes a larger wave pattern. Place ":F3" at the end of m1.

12. If m3 is longer than m2, andm4 is longer than m3, and m0 is less than 61.8%of
m1, m1 may begin an expanding triangle. In this case, add "(:F3)" to the structure
list at the end of m1.

13. If m3 is longer than m2, and m4 is longer than m3, andm0 is between 61.8%
and 100% of m1, then there may be forming an expanding triangle. In this case, add
"(:c3)" to m1’s structure list.

Let us see how Rule 5 (a) works on the example.

First, we find out the rule corresponding to the current market situation. Wave m2
is moving in the opposite direction to m1, and m2 is between 100% and 161.8% of
m1. So, this case refers to retracement rule 5.

The length of m0 is less than 100% of m1. So, the second case of rule 5 (a) is
relevant in this case.

Now, we shall pick up the correct paragraph of the (a) condition. As m1 (plus one
time unit) is retraced in the period of time roughly equal to that it took to form, and
m2 is much longer than m(-2), and m(-4) is obviously longer than m(-3), there works
the second paragraph of rule 5 (a). So, m1 may conclude a zigzag or a flat.
Therefore, we place “:L5” at the end of m1.

Condition b. m0 is at least 100% but less than 161.8% of m1.

1. If m3 is longer than m2, and m0 is closer to 100% than to 161.8% of m1, place
":c3" at the end of m1.

Besides:

 If m(-1) is longer than m0, andthe ":c3" is used as the preferred structure
choice, add "b" in front of ":c3" to get "b:c3". In this case, m1 is the b-wave of
a flat correction.
 If (-1) is shorter than m0, m1 may be an x-wave of a complex correction. In
this case, add "x" in front of the ":c3" to get “x:c3”.
2.  If m3 is longer than m2, andm0 is closer to 161.8% of m1 than to 100%of m1,
place ":F3" at the end of m1.

Besides:

 If m(-1) is longer than m0, m2 is probably the end of a zigzag.

 If m(-1) is shorter than m0, m1 may be an x-wave of a complex correction
which ends with m4.
To represent both possibilities, add “b:c3” and “x:c3” to the structure list of m1.

3. If m3 is at least 61.8% of m1, m3 doesn’t exceed the end of m2, and m2 is closer
to 61.8% of m0, m1 may be the first segment of an irregular failure flat. Add “:F3” to
the structure list of m1.

4. If m3 is less than 100% of m2 but is at least 61.8% of m1, and m3 doesn’t exceed
the end of m2, add “:F3” to m1’s structure list.

5. If m3 is less than 61.8% of m2, and m3 and m1 share some of the price range,
and m4 is not more than 261.8% of m2, and m2 is longer than m0 and/or m4, and
m4 (plus one time unit) is retraced faster than it took to form, and the price reaches
the beginning of m0 during the period not longer than 50% of the time it took to
form m0 through m4, then m4 may be the end of a terminal pattern. Place “(:c3)” at
the end of m1.

However, if ":F3" is one of m1's current structure possibilities, add brackets around
it (“[:F3]”) to indicate ":c3" is a much better choice.

6. If m1 (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, andm2 is almost 161.8% of ml, andm2 is retraced less
than 61.8%, andm(-1 ) is at least 61.8% of m0, andm(-2) is between 61.8%-161.8% of
m(-1 ), and m(-3) is between 61.8% -161.8% of m(-2), andthe combined length of m2
through m4 is longer than m0, m1 complete a contracting triangle; add ":L3" to the
structure list ofm1.

7. If m1 (plus one time unit) is completely retraced in the same amount of time (or
less) that it took to form, andm1 is not more than 161.8% of m(-1), andm2 is almost
161.8% of m1, andm2 is retraced less than 61.8%, andthe total length of m2
through m4 is longer than m0, m1 conclude a flat pattern; add ":L5" to m1’s
structure list.

8. If m(-1) is shorter than m0, andm2 (plus one time unit) is completely retraced in
the same amount of time it took to form (or less), andm0 is not the shortest when
compared to m(-2) and m2, andthe price approaches (or exceeds) the beginning of
m(-2) in a period of time that is 50% (or less) of that consumed by the group of
waves m(-2) through m2, m2 is likely to be the end of a terminal impulse. In this
case, add “:sL3” to m1’s structure list.

9. If the current market situation refers to none of the above conditions, and m1 is
a monowave, mark m1 with all structure labels described in this section, namely,
“:F3/:c3/:5/:L5(:L3)”.

10. If the current market situation refers to none of the above conditions and m1 is
a compacted polywave or a price pattern of a higher degree, you need to pick up a
position indicator to place in front of the structure label of m1. I will cover position
indicators in detail, as well as the ways to apply them, in one of the following
training articles.

Let us see how rule 5 (b) works on the example.

First, we identify the rule corresponding to the current market situation. m2 is
moving in the opposite direction to m1, m2 is in the range of 100%-161.8% of m1.
So, rule 5 applies to our case.

The length of m0 is between 100% and 161.8% of m1. So, there is relevant the
second part of the (b) condition of rule 5.
Now, we shall pick up the relevant paragraph of (b) condition. Wave m3 is longer
than m2. Besides, if we look closer, we will see that m0 is closer to 100% of m1 than
to 161.8% of m1. So, we put “:c3” at the end of m1.

Let us see the next requirement. Wave m(-1) is longer than m0, and, as we have just
found out, “:c3” is a preferable choice. So, the current label should be replaced with
“b:c3”. In our case, m1 is the b-wave of a flat correction.

If m(-1) were shorter than m0, m1 could be an x-wave of a complex correction. If it

were so, we would replace “:c3” with the “x:c3” structure label.

That is all for today. In the next educational post, I’ll continue covering retracement
rule 5 and move on to rule 6.

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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