June 9, 2020
June 9, 2020
NeoWave. Part 25. Fibonacci relations and correction identification with channelingMikhail Hypov
Properties. Proportions. Application.
Dear Friends!
In the previous training articles, I covered progress labels in different types of corrections. Today, I will explain Fibonacci relations and correction identification with channeling. If you aren’t yet familiar with the NeoWave theory, I recommend covering all the articles, starting from the first one, in the NeoWave series based on Glenn Neely’s studies:
[Neo Wave theory. Part 1. Rules for creating charts][1].
[Neo Wave theory. Part 2. Basic information on Polywaves and Structure Labels. ][2]
[NeoWave. Part 3. Retracement Rule 1.][3]
[NeoWave theory. Part 4. Retracement Rule 2.][4]
[NeoWave theory. Part 5. Retracement Rule 3.][5]
[NeoWave. Part 6. Retracement rule 4. Conditions “a” and “b”][6].
[NeoWave. Part 7. Retracement rule 4. Conditions “c”, “d” and “e”][7].
[NeoWave. Part 8. Retracement rule 5. Conditions “a” and “b”][8].
[NeoWave. Part 9. Retracement rule 5. Retracement rule 6, condition “a”][9].
[NeoWave. Part 10. Retracement Rule 6. Conditions “b”, “c”, and “d”][10].
[NeoWave. Part 11. Retracement rule 7.][11]
[NeoWave. Part 12. Impulsions and the rules to analyze impulse wave patterns. ][12]
[NeoWave. Part 13. Corrections. Rules to identify a correction.][13]
[NeoWave. Part 14. Triangles. Rules to identify triangles.][14]
[NeoWave. Part 15. Basic and advanced rules of logic to analyze triangles][15].
[NeoWave. Part 16. Extended rules of logic for Flats and Zigzags.][16]
[NeoWave. Part 17.][17][ ][17][Extended rules of logic for complex corrective patterns.][17]
[NeoWave. Part 18. Rules of complexity and balance. Compaction procedures. Power ratings.][18]
[NeoWave. Part 19. Progress labels applied in trending impulses][19].
[NeoWave. Part 20. Application of progress labels to terminal impulses.][20]
[NeoWave. Part 21. Channeling in impulses and Fibonacci relationships.][21]
[NeoWave. Part 22. Progress labels in flat corrections][22].
[NeoWave. Part 23. Progress labels in triangles.][23]
[NeoWave. Part 24. Progress labels in triangles and zigzags. ][24]
My dear readers, before I go on to the educational material, I would like to give you a few tips so that you can use the information with the maximum effect.
I suggest you follow the below steps:
Have a nice learning!
This section will deal with the channeling applied to the analysis of corrective patterns.
To detect a flat, you draw a channel in the following way:
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][26]
The above chart shows an example of a channel drawn for a flat. Note that its basis line connects the zero point and the end of wave (B). There is also a parallel line drawn across the end of wave (A).
The channel helps you to anticipate the market strength or weakness:
Let us see the implications of channeling on an example:
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][27]
The chart displays a roughly outlined irregular failure flat with a channel. A shorter wave (B) (compared to wave (A)) signals the current weakness of the market. However, the short © wave means that the temporary market weakness has been neutralized, and, after the correction ends, there should be quite a strong move up.
The X-waves in a double or triple flat is almost always much __smaller than the segments of the correction, which they separate. So, the baseline of the channel is drawn across the ends of wave (B) within each pattern. The additional line is parallel to the baseline, it is drawn across the end of wave (A) of one of the flats. If the baseline is broken, the pattern should be complete. A C-failure flat is likely to be the last flat of one of these complex formations.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][28]
The above chart roughly outlines a double flat. Note that the baseline (the upper one in our case) is drawn across the ends of wave (B). There is a parallel line that should be drawn across the end of at least one wave (A). Wave (X) is much shorter than the flats’ segments that compose the sequence. Besides, the second wave © is a failure. This pattern should be over once the price breaks out the channel’s baseline.
These patterns have many variations, so, there is no strict algorithm on how to channel them. I will cover a few examples below, however, Neely recommends drawing channel, like with the double and triple flats, where the baseline is the trend line drawn across the ends of the (B) waves which compose the sequence. Besides, the ends of the (A) waves may compose not very “pure” trend line, i.e. they often exceed the channel border or fail to reach it.
Zigzags are channeled in a similar way that flats do:
The only difference is that the © wave may be far from the trend line or break it through, but it mustn’t touch it. If the © wave touches the trendline, the zigzag is likely to be a part of a more complex pattern, for example, a double or a triple zigzag, a double or a triple flat. Besides, the wave which immediately follows should not retrace all of the zigzag. If that wave retraces less than 61.8% of the zigzag, it should be labeled an X-wave.
During the analysis, you should also bear in mind that the © wave is near its completion if it breaks through the channel’s border.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][29]
The above chart displays an example of the channel for a zigzag covered above. As you see, wave © doesn’t reach the lower trendline.
Unlike many other Elliott patterns, double and triple zigzags create an almost ideal channeling environment. The channel’s borders should contain the entire series of multiple advances and declines (there still could be some crossings). As the internal structure of the waves within the pattern, this is one of the significant differences between double or triple zigzags and impulse formations, in which the crossing of the borders of the channels or a significant failure to achieve occurs much more often.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][30]
The above chart displays a double zigzag within two pink lines of the channel. Note that most highs and lows touch the channel’s lines.
Zigzags.
Double and triple combinations starting with a zigzag, like double and triple zigzags, will channel within defined parallel lines. The line will be crossed when the last corrective phase is nearing completion. This is because the last segment of a double or triple combination is usually a triangle, whose final waves will provide at least one “false” break of the base parallel line before the pattern finally completes.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][31]
The above chart schematically outlines a double combination that is composed of a zigzag and a triangle. Note that most high and lows are within the channel. Starting with the (D) wave the pattern is breaking through the channel’s borders.
For triangles, the base trendline is drawn across the ends of wave (B) and (D). When the trendline gets broken you know the Triangle is over. The trendline on the other side of the triangle may be drawn three different ways:
When you draw the lower line of the channel it is important that the line mustn’t be broken through by the third peak. So, to draw the line, go through the following algorithm.
First, check if the peak of the (E) wave breaks through the (A)-© line. If it doesn’t, leave it. If it breaks, go to the next way and check if the peak of the (A) breaks through the line. If the line is broken, check the (A)-(E) line.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][32]
The above chart roughly outlines an expanding triangle. Note that the base trendline is drawn across (B) - (D) waves, and the additional line is drawn along with the (A) и (С) waves, where wave (E) doesn’t break through the lower channel line.
Here, I am about to finish describing channeling for corrective patterns.
Now, it is time to deal with the Fibonacci relations that will help you to identify the completion of waves in the Elliott wave patterns.
Flats are less likely than any other Elliot pattern have particular internal Fibonacci relations, as in most cases each wave of this pattern is roughly equal to the previous one. The only situation where the Fibonacci ratios are clearly expressed is a significant difference in the price territory covered by waves (A) and (B).
These waves move in opposite directions, there are no reliable Fibonacci relations between them, except for those I described in the section devoted to the [p][13][re-constructive rules][13] of logic
If wave (B) is strong, it likely to retrace 138.2% of wave (A), in rare instances, the relation is 161.8%. However, the above relation will hardly be reached exactly.
A weak wave (B) will be related to wave (A) (if there is any relation at all) by 61.8%.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][33]
It is clear from the [BTCUSD][34] chart above that the above internal Fibonacci relation for a flat correction is confirmed. Strong wave (B) is about 138.2% of wave (A).
The C-wave in a flat has the following characteristics:
Let us see how these relations work on the example.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][35]
The [BTCUSD][34] chart above displays a flat correction. The © wave is about 100% of the (A) wave, which is the most common case.
In more complex corrections, there occurs the so-called waterfall effect. It is based on the principle that after the first external ****support or resistance level has produced a reversal, the market may turn around and break through that level. The second push to new price levels will move only 61.8% of the previous break. If there is a third break, it should move 38.2% of the original move.
When you have analyzed the first flat in a complex pattern, you should use its entire length as a measure. The (A) wave following the (X) wave of the second pattern will quite often retrace 61.8% of the entire first flat, measured from the end of wave © of the first flat.
When you analyze triple flats and combinations, wave (A) of the third pattern is the third break, so it will retrace from the end of the second pattern by 38.2% of the first pattern.
Let us analyze a complex combination on an example.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][36]
The above chart displays an example of a triple flat. After analyzing the first segment, we use its total length as a reference measure. According to the external Fibonacci relations for the double and triple combination that starts with a flat, wave (A) of the second segment retraces by 61.8% of the entire first flat, measured from the start of the first (X) wave (the green area is 61.8% of the red one).
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][37]
Wave (A) of the third flat retraces by 38.2% of the first segment in the pattern (it is marked with the yellow area, which is 38.2% of the red area, measured from the beginning of the second (X) wave.
There are not so many variations of zigzags, and they are less complicated patterns than impulsions, they do not have many Fibonacci relations between their segments.
There are not often any relations between the adjacent waves. Wave (A) and (B) usually relate by 61.8% or 38.2%.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][38]
In the above example of a zigzag, waves (A) and (B) do not relate by any particular Fibonacci ratio. It is clear that wave (B) is close to 61.8% of wave (A).
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][39]
The example of the [Bitcoin ][34]chart that the © wave is close to 100% of wave (A). Therefore, this is a normal zigzag. In the case of real trading, the level of 100% would be the target profit. When the price approached the level and reversed in the opposite direction, it would signal the necessity to urgently exit the trade.
In more complex corrections, there occurs the so-called waterfall effect.
When you have analyzed the first zigzag in a complex pattern, you should use its entire length as a measure. The (A) wave following the (X) wave of the second pattern will quite often retrace 61.8% of the entire first zigzag, measured from the end of wave © of the first flat. Wave © will retrace 38.2% of the first zigzag measured from the end of wave (A).
When analyzing triple zigzags and combinations, Neely recommends subsequently analyze the two wave sequences. That is, you analyze the first two zigzags (or a zigzag and some other corrective pattern) at the first stage as if you were analyzing a common double combination. After completing that study, work with the second two zigzags, the second and the third segment, in the same way.
Let us analyze a complex combination on an example.
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][40]
The above chart displays a double zigzag. After we have analyzed the first zigzag in the complex pattern, we take its entire length as a reference to analyze the second zigzag. I marked this value with the red area.
Wave (A), following the (X) wave, of the second zigzag retraces 61.8% of the entire first zigzag, measured from the start of wave (X) (the end of wave © of the first zigzag).
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][41]
The second push of the waterfall, which is 38.2% of the first zigzag, is measured from the end of wave (A) of the second zigzag. Wave © ends exactly at the level of 38.2%.
If you encounter a triple combination, you repeat the above procedure but the reference measure will be the length of the second zigzag, and the analyzed pattern will be the third zigzag or another correction.
Triangles are composed of more segments than other corrective patterns. So, waves within triangles are more likely to have any specific Fibonacci relations than those in zigzags and flats. Neely believes that there must be at least two Fibonacci relationships that occur between the various segments.
Most often, Fibonacci ratios occur between alternating waves in triangles. The only two adjacent waves that relate by a specific ratio are waves (B) и (D), the most common relationship is 61.8%.
The most likely ratios are:
waves (A), © and (E);
Waves (B) and (D).
Important! Neely defines a testing relation. If wave (B) is 61.8% of wave (A), the pattern is not likely to be a triangle.
Let us see the last three waves of a triangle in detail, which are most commonly related by any Fibonacci ratio.
The © wave of a Triangle usually relates to wave (A) by 61.8%, in rare instances, by 38.2%.
If wave (B) is greater than wave (A), wave © is likely to be 61.8% of wave (B).
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][42]
On the example of the [Bitcoin][34] price chart, it is clear that wave ©, according to Neely’s extended Fibonacci relations, is 61.8% of wave (A). By the way, note that in this triangle, the second trendline of the channel is drawn in an unusual way, across wave (A) and (E).
![LiteForex: NeoWave theory by Glenn Neely. Part 25. Channeling and Fibonacci relations in corrective patterns.][43]
As an example, I use the same triangle. It is clear from the above chart that wave (D), just like the © wave, relates to wave (A) by almost exactly 61.8%.
In the triangle we analyze, wave (E) has only one Fibonacci relation. Wave (E) is 61.8% of the wave (С).
That is all for today. Apply these techniques in practice and test everything in trading. The LiteForex functions are more than enough for this. If you haven’t yet chosen your broker, it’s high time you started trading with [LiteForex][44]. Besides, there is a wonderful opportunity to win a dream house, a brand new car, and cool Apple gadgets in the [dream draw][45] with the total prize fund of 350 000 USD.
In the next educational article, I will deal with missing waves. Subscribe to stay informed on the latest updates!
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![NeoWave. Part 25. Fibonacci relations and correction identification with channeling][48]
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