2018issue C0446-47
Copy an ABC swing as a ruler, then test flags and Fibonacci degree
After an ABC zigzag, wave C is re-labeled as a higher-degree (A). The next (B) is described between the 50 percent and 61.8 percent Fibonacci retracement of (A), wave (C) is projected from that length as a five-wave impulse, and flag or pennant pauses plus an X, Y, and Z re-label test whether the move has changed wave degree.
- After an ABC zigzag, wave C is re-labeled as a higher-degree wave (A), and an ABC correction (B) is the next counted structure.
- That (B) correction is described as retracing wave (A) between the 50 percent and 61.8 percent Fibonacci retracement levels. Once (B) is complete, wave (C) is sized by projecting the length of wave (A) downward from the top of wave (B) and is counted as a five-wave impulse.
- Retracements against waves labeled B, 2, and 4 are described as almost always taking the form of a flag or pennant. A break above resistance line A on 12 July 2017 is classified as a false resistance break.
- If the first (A)(B)(C) is only the opening leg of a larger decline, the sequence is re-labeled X, Y, and Z as a second zigzag lower.
What an ABC zigzag is asked to do
An ABC zigzag is a three-swing corrective sequence in which the third swing can be measured from the first and then re-labeled as a larger-degree first wave. After an ABC zigzag, wave C is re-labeled as a higher-degree wave (A), and an ABC correction (B) is the next counted structure.
Wave degree is the scale of a counted swing relative to surrounding structure. Finishing one ABC can start a larger three-swing sequence.
How the first swing sizes waves (B) and (C)
That (B) correction is described as retracing wave (A) between the 50 percent and 61.8 percent Fibonacci retracement levels. A Fibonacci retracement is a percentage pullback of a prior swing. In this case study the 50 percent and 61.8 percent marks frame the expected (B) correction of wave (A).
Once (B) is complete, wave (C) is sized by projecting the length of wave (A) downward from the top of wave (B) and is counted as a five-wave impulse. An impulse wave is a five-swing directional structure used here as the expected form of wave (C) after (B) finishes.
Flags, pennants, and a false resistance break
Retracements against impulse or correction waves labeled B, 2, and 4 are described as almost always taking the form of a flag or pennant. A flag and pennant is a compact counter-trend coil that, in this case study, marks the B, 2, and 4 pauses against the larger wave.
A break above resistance line A on 12 July 2017, in the first wave of the (B) zigzag, is classified as a false resistance break. A false resistance break is a brief push through a marked resistance line that is read as a trap rather than a confirmed continuation.
When the first count is only the opening leg
If the first (A)(B)(C) is only the opening leg of a larger decline, the sequence is re-labeled X, Y, and Z as a second zigzag lower. That re-label is how the same three-swing idea is kept when the scale of the decline has changed.
Reaction wave Y is described as rising to the 100-bar simple moving average, which coincides with the upper side of a volatility channel and prior wave-4 passive resistance. Passive resistance is a previously established price band, such as an old wave-4 high or the upper edge of a volatility channel, that can cap a later reaction.
Fibonacci extensions and the four-hour copy
After a pullback-based Fibonacci projection, price finds limited support at the 161.8 percent level and then continues to the 261.8 percent level to complete wave A. A Fibonacci extension is a projected multiple of a recent pullback. Here 161.8 percent and 261.8 percent are successive downside targets used to complete wave A.
The same wave count is copied onto a four-hour candlestick chart so the position of price inside the larger move is easier to see.
All readings on this track · 26 readings
- 1986Constructing bounded relative-strength overlays from oscillator limits
- 1989Point-and-figure fulcrum, count, and flag as three jobs
- 1996The high, tight flag as a three-checkpoint continuation exam
- 2000Test chart patterns with confirmation, not names
- 2001Failed chart patterns as reverse breakout signals
- 2002Ascending triangle and flag: a three-checkpoint QQQ case study
- 2002Two-stage chart reading after breakouts
- 2002The second pattern after a breakout
- 2003Building flags, pennants, and triangles as continuation pauses
- 2003When trendline channels age into a wedge or a break
- 2004Bearish chart patterns need confirmation before the turn
- 2004Constructing flags, pennants, and triangles from swing pivots
- 2005Constructing flag and pennant rules from pole to exit
- 2005Fanline construction for testing trend health
- 2005When flag-and-pennant breakout scans fail a measurement audit
- 2006Testing a bear-flag target after the pause is confirmed
- 2007Homebuilder rebound as a bear-flag, trendline, and volume case study
- 2008Completed chart patterns as reward-to-risk arithmetic
- 2012Reading this file
- 2012Reading regime change: when to stop trading
- 2014Intraday flag construction with breakout and stop rules
- 2015Lock lookback and chart scale before you mark a flag or pennant
- 2017Constructing delayed buy-stops on bull flags and pennants
- 2018Copy an ABC swing as a ruler, then test flags and Fibonacci degree
- 2019Failed flags, pennants, and triangles as a completed experiment
- 2020Confirming candlestick and flag signals on a weekly chart