Question of the Week: 6/25/2014

If wave-5 subdivides (inside of a Terminal impulse), can part of it break the 2-4 baseline?


Yes, if two conditions are met. Let's assume the Terminal is trending upward. If you see part of wave-5 break the 2-4 baseline, make sure these two rules are followed:

1. After the break, no part of wave-5 drops below the conclusion of wave-4.
2. The highest price of wave-5 is made before the break of the 2-4 baseline.

For example, if wave-5 is a contracting Triangle, and wave-b (of that Triangle) breaks the 2-4 baseline, make sure the conclusion point low of wave-4 is not broken during any part of wave-5. If not, then rule 1 is met and wave-5 may still be forming. If waves-c, d & e all form inside the price range established by wave-a, then rule 2 is met and wave-5 (of a Terminal) may still be forming. Finally, if a significant market decline ensues after the conclusion of wave-5's contracting Triangle, then it is safe to assume the entire Terminal was labeled correctly.

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