1>2<3 Wave Counting Application

123Waves Intro -Wave Indicator - Application

123-Wave Counting

To practice a little bit the 1>2<3 wave count we will use AA. Let's start from a valid wave 2 and assume the top before that was a first valid wave 3.1.

The next higher top is called 3.2, so we know there is a valid lower top before. 3.2 is followed by a valid wave 2 and once more by a higher top.

This new top is called 3.3.

Once more a valid wave 2 is followed by a higher top 3.4.

The next wave 2 validity is broken when price reaction breaks the start of wave 3.4. Wave 2 changes to a wave 1 (2>1), most probably changing the trend direction.

After a wave 2 reaction we get a new low point, now a wave 3.1 to the downside.

The next wave 2 up reaction is no longer valid when it crosses the start of down wave 3.1. From that point it changes name to wave 1 (2>1).

But also the wave 2 reaction to this wave 1 becomes an invalid wave 2 when it drops below the starting point of the previous wave 1. Normally this wave 2 would become a new wave 1.

However, we have an exception to the rule here because the low drops beyond the previous wave 3.1 low. So, we have a new wave 3.2 low.

Correction wave 2 is followed by a new low wave 3.3 and wave 3.4. The next wave 2 is invalid when it breaks the start of wave 3.4, the wave 2 becomes a new wave 1.

After the correction wave 2 we are making a new wave 3.1 to the upper side. The following top is a fraction lower than 3.1, meaning we have to renumber the expected 3 wave to a 2-wave and the previous 2-wave to a 1-wave. But, also the expected wave 3 down is incomplete turning up before making a low below the start of the previous wave. This now becomes a 2-wave and the previous one changes again (3>2>1). Finally we reach a higher top with a wave 3.2.

These are the 123 wave rules for swing trading with STS8 for a long (short) position:

Either you are expecting an up (down) wave 3.
OR
You are expecting a wave 2 up (down) to become a wave 1 after a larger series of 123-waves and a larger price drop (rise) in a down (up) move.
OR
You are expecting a wave 2 up (down) after a large previous wave 3 down (up), where a price reaction to this wave 3 has sufficient price reaction only room for making a profit.

 

For all the basic techniques, please consult my book “Capturing Profit with Technical Analysis”, published by MarketPlace Books and available HERE

123Waves Intro -Wave Indicator - Application

STOCATA Stocks Technical Analysis HOME