1. Trading rules
The market does not owe me a thing. I’m lucky to be able to trade it and will take what I can get.
Anticipate entries – reacting to market is death.
If you think there is easy money in the market – you are the easy money.
Formal education will make you a living. Self education will make you rich
Have the courage to take massive profits when available, but strive for singles.
Work tirelessly to decrease your average stop loss size.
Do not trade F.Y.E – for your entertainment.
Expect to make 70% of your profits during 30% of the time
If you wantsa to be here for the good times, you gotsa to be here all the times (CME).
PLAN YOUR TRADE – TRADE YOUR PLAN.

2. Class Outline The impulsive 5-Wave pattern Extensions
Motive vs Corrective Waves
The impulsive 5-Wave pattern
Trader psychology within the Wave count
Rules of the 5-wave motive pattern
A-B-C correction basics
Fractal wave counts
Wave labels
Motive Wave Variations
Extensions
Ending & leading diagonals
Live Trade Examples

3. Basic 5-Wave Pattern 5 3
Wave 5
Wave 4
Wave 3 1 4
Wave 2
Wave 1 2

4. The 5-Wave Pattern
Wave 3
- Strong, deliberate, and extended price action
Fundamentals increasingly better
- Investor confidence greatly improved 5 3
Wave 5
Wave 4
Wave 1
- Fundamentals poor
- Investors fully, bearish
expecting new lows
Heavy short selling
Wave 3 1 4
Wave 2
Investors fully bearish, certain of new lows
- Heavily retraces W.1
- Fundamentals horrible, doom and gloom
Volumes light, as sellers dry up
Wave 2
Wave 1 2

5. The 5-Wave Pattern 5 3
Wave 3 is often the longest, but it is never the shortest
Wave 5
Wave 4
Wave 4 can NOT retrace more than 100% of Wave 2.
Wave 3 1 4
Wave 2
Wave 1
Wave 2 can NOT retrace more than 100% of Wave 1. 2

6. Motive Waves 1 Motive Waves break down into 5-waves and are
In line with the higher degree trend .5 .3
Motive waves are labeled with
numbers. .4 .1
Waves 1,3,5 are motive .2

7. Label The Trend Waves

8. Trend Wave V

9. Motive What’s the difference? Diagonal Motive Wave
.iii
.iv
.ii .i .v c c a c a b b a b
Diagonal Motive Wave
Motive Impulsive Wave
Motive = 5 Wave Structure
Motive Impulsive = 5 Wave Structure + Follows Impulsive Rules
Tip : Wave 4 usually over laps into Wave 1 territory.

11. Motive Impulse Pattern
Rules of the 5-Wave Pattern 1 3 4 5 2 1 2 3 5 4
Wave 2 can NOT retrace to the
beginning (or beyond) of Wave 1.
Wave 4 can NOT touch Wave 2.
Wave 3 is often the longest, but
it is never the shortest.

12. Motive Diagonal Pattern1 3 4 5 2
Wave 2 can NOT retrace to the
beginning (or beyond) of Wave 1. 1 3 4 5 2
Wave 4 MUST touch Wave 2.
Wave 1 often the longest, and wave often
5 the shortest, but wave 3 never the shortest

13. Diagonal Triangles Motive, yet NOT impulsive Ending Diagonal
.iii
.iv
.ii .i .v .i
.ii
.iii
.iv .v
Ending Diagonal
Leading Diagonal

14. Ending Diagonal 1 (c) (a) (b) 2 Motive, yet not impulsive.
.iii
.iv
.ii .i .v
(a)
(b)
(c) 1 2
Motive, yet not impulsive.
Occurs at termination points of
larger degree, exhaustive points.
Common in W.5, sometimes C of
A-B-C
W.5 ends in a ‘throw-over’ break
of the trend line of W1 & 3
Subdivides into

15. Leading Diagonal Subdivides into 5-3-5-3-5.
.ii
.iii
.iv .v
Subdivides into
5-wave subdivisions convey continuation,
unlike 3-wave subdivision of ending
diagonals.
Occurs in W1 of impulse, or WA or
a Zig-Zag.
Contains converging trend lines.
Motive, yet not impulsive.

16. Specific Wave Guidelines5 3 B
Wave 5
Wave A
Wave 4
Wave B
Wave 1
Wave C 1
Wave 3 4 A 1 2 3 4 5
Wave 2 C
Wave 1 2

17. Wave One Guidelines Price Structure Ratios & Relationships
Should subdivide in 5 smaller degree waves.
Will be either impulse or leading diagonal.
Ratios & Relationships
Should coincide with shallow retracement from
larger-degree wave (i.e. 23.6% or 38.2%).
Trading Tactics
Be very selective trading. Too little is known about
newly formed motive wave. If anything, short
completion into Wave 2 lower.

18. Wave One Guidelines Price Structure
Should subdivide in 5 smaller degree waves.
Will be either impulse or leading diagonal.

19. Wave One Guidelines Ratios & Relationships Should coincide with
shallow retracement
from larger-degree
wave (i.e. 23.6% or
38.2%).

20. Wave One Guidelines Trading Tactics Be very selective trading.
Little is known about
newly formed motive
wave.
Wave 1 should be larger
than previous corrections.
Consider short entries at
end of smaller W5 of
larger W1 into larger W2.

21. Specific Wave Guidelines5 3 B
Wave 5
Wave A
Wave 4
Wave 2
Wave B
Wave C A B C 1
Wave 3 4 A
Wave 2 C
Wave 1 2

22. Wave Two Guidelines Price Structure Ratios & Relationships
Price structure usually an A-B-C Zig-Zag formation.
Extreme bearishness as Wave 1 lows are approached.
Wave 1 low can NOT be exceeded.
Ratios & Relationships
Typically retraces 50% % of Wave 1.
Often Wave A = Wave C, or Wave C = of Wave A
Trading Tactics
Quality long entry locations are below 50%, but above 78.6% retracement of Wave 1.

23. Wave Two Guidelines Price Structure Usually an A-B-C Zig-Zag
formation.
Extreme Bearishness as
Wave 1 lows are approached.
Wave 1 low can NOT be
exceeded.
Usually a ‘Simple’ & deep
correction.

24. Wave Two Guidelines Ratio & Relationships Typically retraces between
% of Wave 1
Often Wave A = Wave C.
Or, Wave C = of
Wave A
In equities Wave 2 typically
ends on low volume.

25. Wave Two Guidelines Trading Tactics Quality long entry locations
are below 50%, but above
78.6% retracement of Wave 1.
Or, if A = C between 50% to
78.6% retracement
Stop losses should be placed
below Wave 1 lows.

26. Wave Two Guidelines

27. Specific Wave Guidelines5
Wave 3 3 B
Wave 5 1 2 3 4 5
Wave A
Wave 4
Wave B
Wave C 1
Wave 3 4 A
Wave 2 C
Wave 1 2

28. Wave Three Guidelines Price Structure Ratios & Relationships
Usually the strongest & longest, but never the shortest wave.
Should be able to identify 5 waves of smaller degree within
Wave 3, that meet all the rules of an impulse wave.
Ratios & Relationships
Once Wave 1 high is exceeded, minimum objective of Wave 3 is
100% projection of Wave 1 measured up from Wave 2 bottom.
Ideally, Wave 3 travels between – 261.8% of Wave 1
measured from Wave 2 bottom.
Trading Tactics
If not long from Wave 2, longs can be taken on break of
Wave 2 highs targeting or 261.8% projection of
Wave 1. Stops directly below Wave 2 low.

29. Wave Three Guidelines Price Structure Usually the strongest, but
never the shortest wave in
the sequence.
Should be able to identify 5
waves of a smaller degree
within Wave 3, that meet all
the rules of an impulsive
wave.

30. Wave Three Guidelines Ratios & Relationships Once Wave 1 high is
exceeded, minimum target
of Wave 3 is 100%
projection of Wave 1
measured from Wave 2
bottom.
Ideally Wave 3 travels
between 161.8% %
of Wave 1 measured from
Wave 2 bottom.

31. Wave Three Guidelines Trading Tactics If not already long from Wave
2, longs can be take on break
of Wave 1 highs targeting
161.8% & 261.8% projection
of Wave 1. Stops directly
below Wave 2 low.
If 161.8% projection is not at
least 1.5 times greater than
your stop loss, pass.
If market hesitates as 100%
projection of Wave 1 up from
Wave 2, likely a C Wave,
tighten stops or exit position.

32. Trading
Characteristics
of Individual Currencies
Wave Three Guidelines

33. Specific Wave Guidelines5
Wave 4 B A B C
Wave 5
Wave A
Wave 4 D
Wave B
Wave C E 1
Wave 3 4 A
Wave 2 C
Wave 1 2

34. Wave Four Guidelines Price Structure Ratios & Relationships
If wave 2 was a simple A-B-C, expect wave 4 to be shallow & complex.
Triangle or Flat Correction possible. Wave 4 must be at least 1 pip
below Wave 3 high. Complex corrections (W-X-Y) possible.
Ratios & Relationships
Typically retraces 23.6 – 50.0% of wave Total time elapsed
in wave 4 should be at least 1.5 times elapsed time of wave 2.
Trading Tactics
Best to stay out of a Wave 4 as it typically is long and drawn
out. Only acceptable entry is upon completion of a single or
complex flat or triangle in Wave 4 for Wave 5 move to new
highs. Do not enter if Wave 4 has not retraced at least 38.2%
of Wave 3 unless Wave 4 corrective structure is clearly done.

35. Wave Four Guidelines Price Structure If wave 2 was simple A-B-C,
expect Wave 4 to be shallow
& complex.
Triangle, Flat or Complex
(W-X-Y) corrections possible
& likely.
Upon completion, Wave 4
must be at least 1 pip below
Wave 3 high.

36. Wave Four Guidelines Ratios & Relationships
Typically retraces 23.6% to
50% of waves 1-3.
Total time elapsed in Wave 4
should be at least 1.5 times
elapsed time in Wave 2.

37. Wave Four Guidelines Trading Tactics Best to stay out of Wave 4
as it typically long & drawn
out.
Only acceptable entry is upon
completion of a single or
complex flat or triangle in
Wave 4 for Wave 5 move to
new highs. Do not enter if
Wave 4 has not retraced at
least 38.2% of Wave 3 unless
Wave 4 corrective structure
is clearly finished.

38. Specific Wave Guidelines1 2 3 4 5 5 3 B
Wave 5
Wave A
Wave 4
Wave B
Wave C 1
Wave 3 4 A
Wave 5
Wave 2 C
Wave 1 2

39. Wave Five Guidelines Price Structure Ratios & Relationships
Final wave in sequence before corrective reversal begins, possibly
more. Can be either an impulse or an ending diagonal, but must
have 5 waves. Will usually show indicator divergence in Wave 5
as compared to Wave 3.
Ratios & Relationships
Wave 5 completes at:
200% % projection of Wave 1 up from Wave 2.
38.2% % projection of Waves 1-3 up from Wave 4.
127.2% % external retracement of Wave 4.
161.8 – 423.6% external retracement of Wave 2.
If Wave 3 was extended, expect Wave 5 to be equal in distance
to Wave 1. Very powerful relationship. If not, look for Wave 5
to be 61.8% of Wave 1. Will often terminate in Fib clusters.

40. Wave Five Guidelines Trading Tactics
Fading completed 5 wave sequences is vital to professional trader’s
arsenal. There will be overwhelming evidence to do so, but the risk
can be quite low.
Before fading a completed 5 wave sequence, go to 1 lesser
degree and identify another 5th wave completion.
Stops go just above your 5th wave high. Take profits on majority of
your position after 3 wave correction.

41. Wave Five Guidelines Price Structure Final wave in sequence
before corrective reversal
begins, possibly more.
Can be either an impulse or
an ending diagonal, but
must have 5 waves.
Will usually show momentum
indicator divergence in
Wave 5 as compared to
Wave 3.

42. Wave Five Guidelines Ratios & Relationships Wave 5 completes at :
200% % projection of
Wave 1 up from Wave 2.
38.2% % projection of
Waves 1-3 up from Wave 4.
127.2% % external
retracement of Wave 4.
161.8% % external
retracement of Wave 2.

43. Wave Five Guidelines Ratios & Relationships If Wave 3 was extended,
expect Wave 5 to be equal
in distance to Wave 1. Very
powerful relationship. If
not, look for Wave 5 to
terminate at 61.8% of
Wave 1.
Will often terminate into
clusters of various fib
retracements.

44. Wave Five Guidelines

45. Wave Five Guidelines Trading Tactics Fading completed 5 wave
sequence is vital to a traders
arsenal.
Before fading a completed
5 wave sequence, go to one
lesser degree & identify
another 5-th wave
completion.
Stops go just above the 5th
Wave high. Take profits on
majority of your position
after a 3 wave correction.

46. Wave Five Guidelines
Daily Chart Hour Chart

47. Motive vs. Corrective
Motive
Corrective

48. Corrective Wave Variations
Corrective waves work counter to the trend of one large degree, often with hesitant, choppy price action. Most often, corrective waves are 3-waves, but never 5-waves, and are difficult to label in real time and trade.

49. 3 Wave A-B-C Corrective Pattern
Wave B
Wave C A C

50. Complete 8 Wave Pattern 5 Wave A – Investors remain
bullish, convinced of an easy
buying opportunity. 3 B
Wave 5
Wave A
Wave 4
Wave B
Wave C 1
Wave 3 4 A
Wave B – Bullish investors are
convinced the market is moving
to new highs.
Wave 2 C
Wave 1
Wave C – Investors highly
discouraged, stops below
Wave B lows are triggered. 2

51. Label The Corrective Waves

52. Label The Corrective Waves

53. Corrective Waves Corrective waves possess a
3-Wave (ABC) structure that
retraces a % of a prior move
Corrective waves trend in the
opposite direction as the
wave of 1 larger degree. b a
Labeled with letters. c
Waves 2 – 4 – B are
corrective waves.
2 – 4 - B

54. Corrective Waves 5 3 B 1 4 A C 2
Uptrend
Downtrend

55. Variations of Corrective WavesB
Zig-Zag

56. Zig-Zag Corrections B A C (2) or (B) 1. 3-Wave (ABC) structureii iv a
2. Counts as 5-3-5 ii i
3. Often found in W.2 or W.B b
iii i
B-wave retraces less than 78.6% of A
The end of W.C is
considerably lower than the
start of W.A iv v A
iii v C
(2) or (B)

57. Zig Zag Wave A is often equal to Wave C in terms of price
distance traveled

58. Zig-Zag Corrections Wave A is often equal to Wave C in terms of price
distance traveled

59. Trading ZigZags - Retracment

60. Trading ZigZags - Projection

61. Trading ZigZags - Extension

62. Trading ZigZags - Entries

63. Trading ZigZags – 1st Take Profit

64. Trading ZigZags – 1st Take Profit

65. Trading ZigZags – 2nd Take Profit

66. Trading ZigZags – 3rd Take Profit

68. Live Trade Setups Zig Zags in 2nd waves HAL 180 min – red count
RIG 180 min – red count
WYNN 180 min – red count

69. Variations of Corrective WavesB A C
Flat

70. Flat Corrections (3) B A C (4) 3-wave pattern labeled A-B-Cii
iii iv v A B C
(4)
(3)
3-wave pattern labeled A-B-C
Subdivides 3-3-5
Often occurs in W.4
Unlike Zig-Zags, the end of W.C terminates just prior, at, or beyond the end of W.A. B-wave should retrace at least 90% of A
Occurs in strongly trending
markets, around an extension

71. Expanded Flat CorrectionsB
(3) c
W.B ends beyond W.A’s
beginning b ii a
W.C ends beyond W.A’ end i b
Very common variation a iv
Same composition as a
regular flat wave c A
iii v C
(4)

72. Flat Corrections B (3) A C (4) c b ii Counts as 3-3-5 a
W.B ends beyond W.A’s
beginning i b a iv
W.C ends beyond W.A’s end c
Very common variation A
iii v C
(4)

73. FLAT CORRECTION

74. Lennar Wave 2 Flat

78. Variations of Corrective WavesB D E
Triangle

79. Triangle Corrections (3) or (A) (5) or (C) (4) or (B)
Reflects balance of forces B D
Occurs prior to a final motive
wave in the pattern of one
larger degree, terminal move E
5 waves, all with 3-wave
subdivisions, labeled
A-B-C-D-E C
(4) or (B) A
Must retrace portion of the
prior impulse wave at W.E’s end

80. Running Triangles (5) or (C) (3) or (A) (4) or (B) B
W.B exceeds W.A’s beginning D
Advance to new high in W.B
often ‘fakes’ traders out E C
(4) or (B)
Very common variation A

81. Running Triangles

82. Running Triangles

83. Live Analysis S&P 500 Triangle – Trading tactics
XLY – Live Trade setup in trade desk
TLT – live trade setup in trade desk
XLV – Closed trade setup in trade desk from March

84. Beware the Triangle-B Trap

85. Beware the Triangle-B Trap

86. Beware the Triangle-B Trap

87. Comparing Corrections vs Corrections
Comparing price and time of one correction compared to another correction is one of the most powerful ways to set up your trades.

88. Variations of Corrective WavesX Y W
Combination

89. X-Wave Combinations A B C (W) (X) (Y) A B C (W) (X) (Y) X W Y i ii iiiiv v a b c A B C
(W)
(X)
(Y) i ii
iii iv v a b c A B C
(W)
(X)
(Y)
Instead of an A-B-C pattern,
combinations take on an
W-X-Y pattern X
X waves are typically a
Zig-Zag pattern
W & Y waves are either
Zig-Zags, Flats or Triangles W
Combinations typically have
a side-ways appearance Y

90. Double Zig-Zag Combo B (X) A C (W) (Y) i ii iii iv v a b c
A Double Zig-Zag joined by a X wave which is also a Zig-Zag
This would be a very deep correction compared to other combinations

91. What combo is this? ii
iii a b c i iv v

92. What combo is this? B ? B ii
iii a b c i iv v D E C A A C

93. What combo is this? B
(X) B ii
iii a b c i iv v D E C A A C

94. What combo is this? ii
iii a b c i iv v A B C D E
(W)
(X) 4
(Y)

95. Flat Triangle Combo Flat Wave Triangle (X) (Y) (W)
Flat Waves are common in the W wave position
Triangles are common in the Y wave position
This combination looks more sideways than directional

96. What combo is this? ii
iii a b c i iv v

97. What combo is this? ii
iii a b c i iv v A B C
(X)

98. What combo is this? ii
iii a b c i iv v A B C
(X)
(Y)
(W)

99. Flat Zig-Zag Combo
Flat Wave
(X)
Zig-Zag
(W)
(Y)

100. Labeled W-Y-Z (W-X-Y-X-Z). Rare.
What’s this?
Zig-Zag
(X)
(X)
Flat
Triangle
(W)
(Z)
(Y)
Triple combinations are three corrective patterns joined by two X waves.
Labeled W-Y-Z (W-X-Y-X-Z). Rare.

101. Labeled W-Y-Z (W-X-Y-X-Z). Rare.
Triple Combination
Zig-Zag
(X)
(X)
Flat
Triangle
(W)
(Z)
(Y)
Triple combinations are three corrective patterns joined by two X waves.
Labeled W-Y-Z (W-X-Y-X-Z). Rare.