Question of the Week: 9/19/2007
You mention in Mastering Elliott Wave, on page 5-25, the concept of touchpoints within a Triangle. How important is this rule and does it always apply?
The NEoWave Rule of Touchpoints is essential to good pattern development. Many times I've seen orthodox Elliott Wave analysts encase contracting (or expanding) price action where every wave segment (0-A-B-C-D-E) is touching one of the two channels; instantly I know that count will eventually have to be changed.
Under NEoWave, contracting and expanding Triangles should never have more than two touchpoints on the top channel and two on the bottom channel. This means waves-B and D will create the baseline, but the start of the Triangle (point 0) will not fall on the same channel. On the other side, either waves-A and C or C and E will create a channel (rarely will it be waves-A and E), but the third of the three will NOT touch the channel. Following the above channeling rules is essential for reliable forecasting and stable wave structure.
Whenever you see a Triangle channel perfectly you know something will happen to delay its conclusion and the pattern will simply get more complex. It is possible for a Zigzag or a Flat to channel perfectly. This is where points 0 and B and A and C all touch parallel trendlines. But, any time a Flat or Zigzag channels perfectly, it tells you that pattern will be followed by an X-wave to become part of a larger, more complex corrective formation (see Chapter 8 of Mastering Elliott Wave).
Click here to view NEoWave's Question Of The Week archive