Channeling and Fibonacci relations in corrective patterns. Properties.

Proportions. Application.

Dear Friends!

In the previous training articles, I covered progress labels in different types of

corrections. Today, I will explain Fibonacci relations and correction identification
with channeling. If you aren’t yet familiar with the NeoWave theory, I recommend
covering all the articles, starting from the first one, in the NeoWave series based on
Glenn Neely’s studies:

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”.

NeoWave. Part 8. Retracement rule 5. Conditions “a” and “b”.

NeoWave. Part 9. Retracement rule 5. Retracement rule 6, condition “a”.

NeoWave. Part 10. Retracement Rule 6. Conditions “b”, “c”, and “d”.

NeoWave. Part 11. Retracement rule 7.

NeoWave. Part 12. Impulsions and the rules to analyze impulse wave patterns.  

NeoWave. Part 13. Corrections. Rules to identify a correction.

NeoWave. Part 14. Triangles. Rules to identify triangles.

NeoWave. Part 15. Basic and advanced rules of logic to analyze triangles.

NeoWave. Part 16. Extended rules of logic for Flats and Zigzags.

NeoWave. Part 17. Extended rules of logic for complex corrective patterns.  

NeoWave. Part 18. Rules of complexity and balance. Compaction procedures.

Power ratings.

NeoWave. Part 19. Progress labels applied in trending impulses.

NeoWave. Part 20. Application of progress labels to terminal impulses.

NeoWave. Part 21. Channeling in impulses and Fibonacci relationships.

NeoWave. Part 22. Progress labels in flat corrections.

NeoWave. Part 23. Progress labels in triangles.

NeoWave. Part 24. Progress labels in triangles and zigzags.

My dear readers, before I go on to the educational material, I would like to give you
a few tips so that you can use the information with the maximum effect.

I suggest you follow the below steps:

1. Before you start reading, prepare a pen and a notebook.

2. I recommend printing the article or pasting it into a text editor to work with
text.

3. Read the article for the first time to get the gist without going deep into
details. Underline the key points in each paragraph. Highlight the words that
are not clear or raise questions.

4. Use the search engine and look up the definitions of the words you do not
understand. Try to find out the solution for each question yourself and put
down the information you find in the notebook.

5. Read the article once again, trying to check and put each of the statements
into practice. You can get the historical data for testing here, on
the LiteForex platform!

6. Write a summary of the article, put down the main points and thoughts for
each section.

7. If you failed to do anything, or you still have questions, write a comment

under the article, which you have questions about. If you see a comment
with a question you know the answer to, help your colleagues find a solution.

Have a nice learning!

Correction identification with channeling

This section will deal with the channeling applied to the analysis of corrective
patterns.
Channeling in flat corrections

To detect a flat, you draw a channel in the following way:

 You draw a basis line connecting the zero point and the end of wave (B).
 You draw a parallel horizontal line across the end of wave (A).

The above chart shows an example of a channel drawn for a flat. Note that its basis
line connects the zero point and the end of wave (B). There is also a parallel line
drawn across the end of wave (A).

The channel helps you to anticipate the market strength or weakness:

 The larger the (B) wave, the greater the chances of an explosive move (either
up or down) after wave (C) completes.
 The smaller wave (B) is in relation to wave (A), the more likely the flat will
either be the first segment of a larger (A)-(B)-(C) orthe flat will be followed by
an X-wave and another standard correction.

 If a flat channels perfectly (i.e. if wave (C) is the same length as wave (A)), it
will probably be followed by an X-wave and become part of a complex
correction

Let us see the implications of channeling on an example:

The chart displays a roughly outlined irregular failure flat with a channel. A shorter
wave (B) (compared to wave (A)) signals the current weakness of the market.
However, the short (C) wave means that the temporary market weakness has been
neutralized, and, after the correction ends, there should be quite a strong move up.

Channeling for Double and Triple Flats

The X-waves in a double or triple flat is almost always muchsmaller than the
segments of the correction, which they separate. So, the baseline of the channel is
drawn across the ends of wave (B) within each pattern. The additional line is
parallel to the baseline, it is drawn across the end of wave (A) of one of the flats. If
the baseline is broken, the pattern should be complete. A C-failure flat is likely to be
the last flat of one of these complex formations.
The above chart roughly outlines a double flat. Note that the baseline (the upper
one in our case) is drawn across the ends of wave (B). There is a parallel line that
should be drawn across the end of at least one wave (A). Wave (X) is much shorter
than the flats’ segments that compose the sequence. Besides, the second wave (C)
is a failure. This pattern should be over once the price breaks out the channel’s
baseline.

Channeling for Double and Triple Combinations

These patterns have many variations, so, there is no strict algorithm on how to
channel them. I will cover a few examples below, however, Neely recommends
drawing channel, like with the double and triple flats, where the baseline is the
trend line drawn across the ends of the (B) waves which compose the sequence.
Besides, the ends of the (A) waves may compose not very “pure” trend line, i.e. they
often exceed the channel border or fail to reach it.

Channels for Zigzags

Zigzags are channeled in a similar way that flats do:

 Draw a baseline connecting the zero point and the end of the (B) wave.
 Draw a parallel line across the end of wave (A).

The only difference is that the (C) wave may be far from the trend line or break it
through, but it mustn’t touch it. If the (C) wave touches the trendline, the zigzag is
likely to be a part of a more complex pattern, for example, a double or a triple
zigzag, a double or a triple flat. Besides, the wave which immediately follows should
not retrace all of the zigzag. If that wave retraces less than 61.8% of the zigzag, it
should be labeled an X-wave.

During the analysis, you should also bear in mind that the (C) wave is near its
completion if it breaks through the channel’s border.

The above chart displays an example of the channel for a zigzag covered above. As
you see, wave (C) doesn’t reach the lower trendline.

Channel for Double or Triple Zigzags

Unlike many other Elliott patterns, double and triple zigzags create an almost ideal
channeling environment. The channel’s borders should contain the entire series of
multiple advances and declines (there still could be some crossings). As the internal
structure of the waves within the pattern, this is one of the significant differences
between double or triple zigzags and impulse formations, in which the crossing of
the borders of the channels or a significant failure to achieve occurs much more
often.

The above chart displays a double zigzag within two pink lines of the channel. Note
that most highs and lows touch the channel’s lines.

Channels for Double and Triple Combinations, which start with Zigzags.

Double and triple combinations starting with a zigzag, like double and triple zigzags,
will channel within defined parallel lines. The line will be crossed when the last
corrective phase is nearing completion. This is because the last segment of a
double or triple combination is usually a triangle, whose final waves will provide at
least one “false” break of the base parallel line before the pattern finally completes.
The above chart schematically outlines a double combination that is composed of a
zigzag and a triangle. Note that most high and lows are within the channel. Starting
with the (D) wave the pattern is breaking through the channel’s borders.

Channels for Triangles

For triangles, the base trendline is drawn across the ends of wave (B) and (D). When
the trendline gets broken you know the Triangle is over. The trendline on the other
side of the triangle may be drawn three different ways:
 (A)-(C) – the most common way;
 (C)-(E) — less common;

 (A)-(E) – the least common.

When you draw the lower line of the channel it is important that the line mustn’t be
broken through by the third peak. So, to draw the line, go through the following
algorithm.

First, check if the peak of the (E) wave breaks through the (A)-(C) line. If it doesn’t,
leave it. If it breaks, go to the next way and check if the peak of the (A) breaks
through the line. If the line is broken, check the (A)-(E) line.
The above chart roughly outlines an expanding triangle. Note that the base
trendline is drawn across (B) - (D) waves, and the additional line is drawn along with
the (A) и (С) waves, where wave (E) doesn’t break through the lower channel line.

Here, I am about to finish describing channeling for corrective patterns.

Fibonacci relations

Now, it is time to deal with the Fibonacci relations that will help you to identify the
completion of waves in the Elliott wave patterns.

Fibonacci relations in flat corrections

Flats are less likely than any other Elliot pattern have particular internal Fibonacci
relations, as in most cases each wave of this pattern is roughly equal to the
previous one. The only situation where the Fibonacci ratios are clearly expressed is
a significant difference in the price territory covered by waves (A) and (B).

Internal Fibonacci relations of wave (A) and (B) in flat corrections

These waves move in opposite directions, there are no reliable Fibonacci relations
between them, except for those I described in the section devoted to the pre-
constructive rules of logic
  If wave (B) is strong, it likely to retrace 138.2% of wave (A), in rare instances,
the relation is 161.8%. However, the above relation will hardly be reached
exactly.
 A weak wave (B) will be related to wave (A) (if there is any relation at all) by
61.8%.

It is clear from the BTCUSD chart above that the above internal Fibonacci relation
for a flat correction is confirmed. Strong wave (B) is about 138.2% of wave (A).

Fibonacci relations for wave (С) in a flat

The C-wave in a flat has the following characteristics:

 The (C) wave in a flat should not exceed the (A) wave by more than 138.2%
unless it is an elongated flat.
 Wave (С) is rarely less than 61.8% of wave (A). If it is, the (B) should be
forming as a very small triangle.

 Very often, the (C) wave is roughly equal to the (A) wave. The next common
relation between wave (C) and (A) is 61.8% when there is a C-failure or a B-
failure.

 The minimum internal relationship allowed between wave (A) and wave (C) is
38.2%. This only happens on rare occasions in what is called a “severe”
failure. This can happen if the (B) wave is between 61.8% – 100% of wave (A).
 Besides, the closer is wave (B) to 100% of wave (A), the more likely is the
severe failure to occur.

Let us see how these relations work on the example.

The BTCUSD chart above displays a flat correction. The (C) wave is about 100% of
the (A) wave, which is the most common case.

External Fibonacci for double and triple flats and combinations

In more complex corrections, there occurs the so-called waterfall effect. It is based

on the principle that after the first externalsupport or resistance level has produced
a reversal, the market may turn around and break through that level. The second
push to new price levels will move only 61.8% of the previous break. If there is a
third break, it should move 38.2% of the original move.

When you have analyzed the first flat in a complex pattern, you should use its
entire length as a measure. The (A) wave following the (X) wave of the second
pattern will quite often retrace 61.8% of the entire first flat, measured from the end
of wave (C) of the first flat.

When you analyze triple flats and combinations, wave (A) of the third pattern is the
third break, so it will retrace from the end of the second pattern by 38.2% of the
first pattern.
Let us analyze a complex combination on an example.

The above chart displays an example of a triple flat. After analyzing the first
segment, we use its total length as a reference measure. According to the external
Fibonacci relations for the double and triple combination that starts with a flat,
wave (A) of the second segment retraces by 61.8% of the entire first flat, measured
from the start of the first (X) wave (the green area is 61.8% of the red one).
Wave (A) of the third flat retraces by 38.2% of the first segment in the pattern (it is
marked with the yellow area, which is 38.2% of the red area, measured from the
beginning of the second (X) wave.

Fibonacci relations in Zigzags

There are not so many variations of zigzags, and they are less complicated patterns
than impulsions, they do not have many Fibonacci relations between their
segments.

Fibonacci relations between waves (A) and (B) in Zigzags

There are not often any relations between the adjacent waves. Wave (A) and (B)
usually relate by 61.8% or 38.2%.

In the above example of a zigzag, waves (A) and (B) do not relate by any particular
Fibonacci ratio. It is clear that wave (B) is close to 61.8% of wave (A).

Fibonacci relations for wave (C) in Zigzags

 Wave (C) in a normal zigzag may be 61.8%, 100%, or 161.8% of wave (A).
 An elongated wave (C) do not usually relate to the (A) wave by any specific
ratio. It is always more than 161.8% of wave (A), and the zigzag is a segment
 of a complex pattern making up a leg of a triangle or is itself a leg of a
triangle. In some cases waves (A) and () relate by 261.8%.

 Wave (C) should not be less than 61.8% of wave (A). If so, it is probably due to
a very small (B) wave that is a triangle. The zigzag is probably the entire leg of
a triangle or part of a complex correction, which is the leg of a triangle,

 Wave (C) in a truncated zigzag can be 38.2% of wave (A).

The example of the Bitcoin chart that the (C) wave is close to 100% of wave (A).
Therefore, this is a normal zigzag. In the case of real trading, the level of 100%
would be the target profit. When the price approached the level and reversed in the
opposite direction, it would signal the necessity to urgently exit the trade.

Fibonacci relations in Double and Triple Zigzags and Combinations

In more complex corrections, there occurs the so-called waterfall effect.

When you have analyzed the first zigzag in a complex pattern, you should use its
entire length as a measure. The (A) wave following the (X) wave of the second
pattern will quite often retrace 61.8% of the entire first zigzag, measured from the
end of wave (C) of the first flat. Wave (C) will retrace 38.2% of the first zigzag
measured from the end of wave (A).

When analyzing triple zigzags and combinations, Neely recommends subsequently

analyze the two wave sequences. That is, you analyze the first two zigzags (or a
zigzag and some other corrective pattern) at the first stage as if you were analyzing
a common double combination. After completing that study, work with the second
two zigzags, the second and the third segment, in the same way.

Let us analyze a complex combination on an example.

The above chart displays a double zigzag. After we have analyzed the first zigzag in
the complex pattern, we take its entire length as a reference to analyze the second
zigzag. I marked this value with the red area.

Wave (A), following the (X) wave, of the second zigzag retraces 61.8% of the entire
first zigzag, measured from the start of wave (X) (the end of wave (C) of the first
zigzag).
The second push of the waterfall, which is 38.2% of the first zigzag, is measured
from the end of wave (A) of the second zigzag. Wave (C) ends exactly at the level of
38.2%.

If you encounter a triple combination, you repeat the above procedure but the
reference measure will be the length of the second zigzag, and the analyzed pattern
will be the third zigzag or another correction.

Fibonacci relations in triangles

Triangles are composed of more segments than other corrective patterns. So,
waves within triangles are more likely to have any specific Fibonacci relations than
those in zigzags and flats. Neely believes that there must be at least two Fibonacci
relationships that occur between the various segments.

Most often, Fibonacci ratios occur between alternating waves in triangles. The only
two adjacent waves that relate by a specific ratio are waves (B) и (D), the most
common relationship is 61.8%.

The most likely ratios are:

 waves (A), (C) and (E);

 Waves (B) and (D).
Important! Neely defines a testing relation. If wave (B) is 61.8% of wave (A), the
pattern is not likely to be a triangle.
Let us see the last three waves of a triangle in detail, which are most commonly
related by any Fibonacci ratio.

Fibonacci relations fro wave (C) in triangles

 The (C) wave of a Triangle usually relates to wave (A) by 61.8%, in rare
instances, by 38.2%.
 If wave (B) is greater than wave (A), wave (C) is likely to be 61.8% of wave (B).

On the example of the Bitcoin price chart, it is clear that wave (C), according to

Neely’s extended Fibonacci relations, is 61.8% of wave (A). By the way, note that in
this triangle, the second trendline of the channel is drawn in an unusual way, across
wave (A) and (E).

Fibonacci relations for wave (D) in a triangle

 Wave (D) is often related to wave (A) by 61.8%.

 Wave (D) can also relate to any wave of the triangle by 61.8% (more likely) or
38.2%.
As an example, I use the same triangle. It is clear from the above chart that wave
(D), just like the (C) wave, relates to wave (A) by almost exactly 61.8%.

Fibonacci relations for wave (E) in a triangle

 Wave (E) will usually relate to wave (D) by 61.8% or 38.2% (in rare instances).
 It could also relate to the larger waves, except (D) by 38.2%.

 If the (B) wave is larger than than the (A) wave, wave (E) will relate to wave (A)
by any ratio.

In the triangle we analyze, wave (E) has only one Fibonacci relation. Wave (E) is
61.8% of the wave (С).

That is all for today. Apply these techniques in practice and test everything in
trading. The LiteForex functions are more than enough for this. If you haven’t yet
chosen your broker, it’s high time you started trading with LiteForex. Besides, there
is a wonderful opportunity to win a dream house, a brand new car, and cool Apple
gadgets in the dream draw with the total prize fund of 350 000 USD.

In the next educational article, I will deal with missing waves. Subscribe to stay
informed on the latest updates!
I wish you good luck and good profits!

P.S. Did you like my article? Share it in social networks: it will be the best “thank
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Ask me questions and comment below. I’ll be glad to answer your questions and
give necessary explanations.

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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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reflect the official position of LiteForex. The material published on this page is
provided for informational purposes only and should not be considered as the
provision of investment advice for the purposes of Directive 2004/39/EC.
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WRITTEN BY
Mikhail Hypov
Investment analyst and independent trader

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