11. Analysis and forecasting of the corrective waves
The depth of corrective waves as one of the options market (outside the bear market)
To date, there is no such market-based approach, which would have been able to give a precise answer to the perennial question "At what level will stop the fall of a bear market?". Practice shows that the correction in most cases carry a maximum rollback before the plot on which the development of the previous fourth wave of a lower level. As a rule, the maximum recoil corrections to the level observed around the end of the previous wave. In particular, this applies to those situations where the correction themselves act as fourth waves.
Example number 1: State of the bear market in 1929-1932.
In the above chart reflects the situation that took place in a bear market in the period from 1929 to 1932. The graph of stock prices has been designed by Gertrude Sherk and published in 1977 in his treatise "Principles for the study of cycles." For clarity, the situation in the market price chart shows a single dollar. The basic wave structure as shown in the graph, the triangle is a convergent, acting as a wave (IV). Its ending is confined to the area of the previous fourth wave, which received development within the Basic level, a triangle of divergent type (see chart below).
Example number 2: The lower the value of a bear market in 1942
In the period from 1937 to 1942. development of the bear market took place within the wavelength of the wave of the Basic level. The end of the zigzag was dedicated to the field of the wave [4] the bull market in the period from 1932 to 1937. Described by wave motion is represented as a graph in Fig.5-3.
Example number 3: The lower boundary of a bear market in 1962
Duck wave [4] in 1962 led the index down just above the mark of the highest point of 1956 five-wave sequence of the Primary wave level from 1949 to 1959. If the situation has proceeded according to the standard plan, the Bears have reached the zone of the wave (4) (a corrective fourth wave within the wave [3]). This small mistake, however, illustrates why this principle is an indication, rather than the rule. Extension of a previous wave of strong third-wave, short wave and a strong wave in a wave [4] show the power of the wave structure, which leads to a moderate depth of the final correction.
Example number 4: The lower boundary of a bear market in 1974
The final decline noted in 1974, in fact, meant the end of the corrective wave IV 1966-1974 gg., Development of which occurred within the Basic level of the wave. The final fall of the market from the general rise in wave III, in 1942 led to the index sank down into the area of the previous fourth wave, located at the Primary level, a wave (see Fig. 5-3).
Our analysis of wave sequences that have grown up in a small wave at the last two decades, once again confirmed the fact that the area of the previous fourth wave, located lower level, is the limiting factor for all bear markets. This statement is particularly true in cases where a bear market itself is the fourth wave. In addition, in some cases, correction, development of which occurs after the fifth wave is limited to the bottom of the second wave of a lower level of the wave. This phenomenon occurs when the fifth wave in the sequence is extended in nature. As an example, fall in the DJIA in March 1978. The fall of the index, following the development of the fifth wave has reached its bottom at the bottom of wave 2 mark.
In some cases, triangles or flat correction may be so weak that simply can not achieve the development of the fourth wave. This is especially true of triangles, which follow directly behind the wave extensions. At the same time, the zigzags can actively move deep into the area of the second wave of a lower level of the wave. This phenomenon usually occurs only in cases where the zigzags themselves act as a second wave. As practice shows, that's a so-called "double bottom".
Elongation of the fifth wave: what next?
It should be noted that there are several empirically derived rules, which are of particular value when considering the market situation. Among these include the following, and field observations. The essence of this unwritten rule is that in those cases where the fifth wave is extended in nature, following the correction of the wave it will be quite sharp and will be supported only at the lowest point of the second wave of the same wave lengthening. In some cases, the end of the wave correction can occur, as shown in Fig. 2-7. In practice, the situation in which the wave "A" developed to a level lower limit of the second extension subwave previous wave 5, are quite rare. However, the accuracy with which the wave "A" takes place before this point, simply amazing.
In Fig. 7.2 shows the development of a plane wave correction. For convenience, we recommend noting two real examples, which will later be used to illustrate certain situations. One such example - Fig. 5-3, which shows a zigzag. Zigzag is located at the bottom of the mark of a wave [A], which is part of wave II. In Fig. 5.3 clearly shows that the development subwave A wave (IV) completed approximately two subwave fifth wave, which serves as the lengthening of wave V from 1921 to 1929. The second example - Fig. 2-8, which shows the development of the Expanded Flat with a lower mark subwave. The above is part of the subwave vodvolny A wave 4.
It is known that in the vast majority of cases, the value of the second wave is the wave extension of the previous fourth wave of the wave of higher-level or close to it. Therefore, this indication is very similar to the previous one. At the same time, unlike its predecessor, it differs amazing accuracy. An additional advantage of this guidance is provided by the fact that the fifth wave extensions, usually followed by prompt and rapid reversals. Their appearance, in fact, serves as a signal of impending change of direction to a certain level. Therefore, the value of such guidance to the objective situation in the market can not be overestimated. By the way, it does not apply to certain wave fifth wave elongations, which are themselves extensions of the wave functions as in the fifth wave.
Other entries on the topic:
Lesson 2: The Subtleties of the full cycle
Lesson 7: Plane correction (3-3-5)
Lesson 8: Horizontal triangles
Lesson 9: Combinations such as corrective
Lesson 10: Direction of alternation
Lesson 12: The Education Channel
Lesson 13: Additional information
Lesson 14: Personality as one of the characteristics of wave
