Case Studies:
The best way to understand how this pattern works is to study collection of charts with real life examples.
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Wave 3 up has to exceed length of wave 1 up by at least 76.4%. To find the minimum target for the Wave 3 up we first measure distance covered by Wave 1 up and then project that distance multiplied by 1.76 from the bottom of Wave 2 down. That 176.4% extension (1.764 * 100% ) is the minimum extension for the wave 3. We will study next other most common extention ratios for the wave 3 in the next lesson!
Let’s review a simple example:
Wave 1 up starts at $40 and tops at $55. Its length is $55 – $40 = $15.
Wave 2 down starts at the top of wave 1 at $55 and pushes price lower to $45.
Taking into account one of the most common projection ratio of 176.4% we can easily compute in advance a potential level where Wave 3 up may complete!
Wave 3 = Wave 1 x Projection Ratio
Wave 3 = ($55-$45) x 176.4% = $17.64
Wave 3 starts at the bottom of Wave 2 at $45.
Then a target for Wave 3 up is: $45 + $17.64 = $62.64!
The best way to understand how this pattern works is to study collection of charts with real life examples.