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The New Elliot Wave Rule
The New Elliot Wave Rule
NEW
ELLIOTT WAVE
RULE
ACHIEVE DEFINITIVE
WAVE COUNTS
2009 T.S. Hennessy
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2
RIGHTS SECTION
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ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
4
DEDICATION
First I would like to dedicate this book to my wife Sandy, who is a never-ending
inspiration to me.
Next it is important to recognize the immense value in the original work of R.N.
Elliott, as well as the dedicated and prolific Robert Prechter, Jr., and others who
have worked diligently to promote Elliott's Wave Principle.
Finally it seems appropriate to give a little more recognition to that cohesive form
which is at work in markets. We are constantly observing it, whether we are
aware or not. That is the foundation on which all this rests...
Phi the Golden Ratio 1.618 : 1 : .618 Fibonacci series numbers the
internal numerical relationships that run beneath the surface of the Waves.
This book will be a practical look at wave structure. We won't be going into these
numerical relationships at all here. However, this book would not be here if we
were not observing the results of these factors.
Well, ok, just this one. The colored line segments in this 5 point Star are each
depicting the relationship of the Golden Ratio as you move from one length to the
next closest length.
Table of Contents
Introduction....................................................................................................................8
What Is In This Book.........................................................................................8
What Is Not In This Book..................................................................................8
Chapter One..................................................................................................................9
Achieve Definitive Wave Counts.............................................................................9
The End Game.................................................................................................9
R.N. Elliott's Unsolved Mystery........................................................................9
The Fly In The Ointment.................................................................................10
Confusion or Interpretation? Results Are The Same...................................11
Alternate Counts and Blown Calls and 'Crazy Waves'...................................12
Are We There Yet?.........................................................................................13
Chapter Two................................................................................................................15
Clues to Good News.............................................................................................15
Information Age...............................................................................................15
Psychology And The Psychologist..................................................................16
Chapter Three..............................................................................................................18
The Devil In The Details........................................................................................18
Casual Observation Or Actual Count.............................................................18
Chapter Four...............................................................................................................21
The New Elliott Wave Rule...................................................................................21
Letting The Waves Tell Their Own Story........................................................21
Saltwater Does Not Burn................................................................................21
A Rule is Only A Rule If It's A Rule..................................................................22
Rule Statement...............................................................................................23
Give Me More Detail Please...........................................................................25
Room To Grow................................................................................................25
New Degrees Of Scale...................................................................................26
Degrees Table.................................................................................................27
Now We Can Get The Full Viewpoint.............................................................28
Better Wave Identification...............................................................................29
If You Can See It, It's a C ..........................................................................30
Chapter Five................................................................................................................33
A Simple Elegance Revealed...............................................................................33
The Great Benefit Of Less Is More.................................................................33
The List Of Spare Parts..................................................................................33
Sleek And Streamlined...................................................................................35
Chapter Six..................................................................................................................36
The Key To It All....................................................................................................36
A Different Road.............................................................................................36
Unchanging Wave Structure...........................................................................37
Appendix......................................................................................................................38
References............................................................................................................38
Brief Outline Of Elliott Wave Structures................................................................38
The Back Flap.............................................................................................................40
About The Author..................................................................................................40
Watching Waves Crash Onto The Shore.......................................................40
Introduction
The Elliott Wave has had its detractors. That is understandable. It has certainly also had
an enthusiastic following. This is also understandable!
Chapter One
Achieve Definitive Wave Counts
The market calls coming from Elliott's Wave analysis were remarkable. He was
beginning to get recognition. So what was the thing which he sought in vain and other
proponents agreed had been elusive or non-existent?
There was a problem with the Wave Principle. To be sure, it was not completely
insurmountable or you and I would not be discussing its structure and rules.
It was really an issue though and it remains one up until now. It came down to usability.
If different people arrive at different conclusions then what good is the analysis
technique? It is already very well known that the technique works quite well. Yet there
were still all these different interpretations.
This must have dogged Elliott, even early on, to the point where he stated, No
interpretation of the Wave Principle should be accepted as valid unless made by me or
by a student directly licensed by me."1
One would think that this means there was a gap. Something was not quite right.
Mr. Elliott knew this and said in 1935 that, "waves do not make errors, but my version
may be defective. [However], the nearer one approaches the primary law, the less
errors will occur." 2
Elliott Wave as a system is not very complex. All Degrees and Formations will consist of
one of either,
Style one: Motive, 1 to 5; OR Style two: Corrective, A to C
The existence of variability can be the only reason for this trouble of differing results.
10
So it seems if the market can go around changing the Standard layout then there must
be some Modifier(s) to handle this change. Otherwise you might get lost.
There were, but they still did. (Modifiers were added technicians still got lost).
This is not surprising because not only was this extension thing able to just show up,
but it had another level of variability within the variability.
Elliott Wave rules basically show Extensions as an extra wave (including the internal
structure of a motive).
Just on its own, the extra wave would be enough variability. It is also stated, however,
that this can happen in ANY one of the three impulse waves, adding that extra
variability.
Now this goes further, actually, because the corrective waves contain internal motive
waves which have this blessed talent. Also Elliott had a bonus section called
Extensions of Extensions.
11
Example of 'Crazy Waves' Even if the conclusions ultimately turned out to be correct,
is this Helpful? Definitive?
13
R.N. Elliott set for the Wave Principle an extremely Lofty Goal of Definitive Wave
Counts but was not able to bring this about in common application by investors.
Why not? Is it just a matter of too much work; is it too complicated?
That really could not be the reason because as seen in our example above, there are
certainly those who are willing to put forth whatever level of effort is needed. Yet they
are not achieving definitive wave counts or you would hear about it. That internet is very
efficient for news of methods which earn money.
Then what is keeping Elliott Wave from being what it ought to be, an investor's most
trustworthy analysis technique? When I learned about Elliott Wave analysis, I wanted to
use it to identify swing pivots in a definitive way. Do you? Read on.
14
Chapter Two
Clues to Good News
Information Age
Fortunately for you and I, Mr. Elliott left some clues in that book as to what the reasons
were behind his inability to find the answer to his stated search for crucial information.
One of the clues is related to something that was mentioned in the beginning of this
chapter. In analyzing data yes that's what technical analysis is, data analysis, it is
never going to help in reaching correct conclusions if you are missing some of the data.
Elliott Wave structures are formed from bits of data known as ticks which are individual
trade transactions which list price, volume and time callouts. We collect these and
bundle them into containers called bars or candles. We typically choose a timeframe
and by doing that we vary their start and end time which will separate the trades outside
those times into other bars or candles. We will call this data Detail.
It was stated earlier that we need sufficient detail to arrive at our objective. Let's hear
what Mr. Elliott had to say.
He mentioned a list of crucial elements for Elliott Wave relating to information flow in
liquid markets with public participation. I wish to direct your attention to the last item. His
list begins when he states, "When the machinery described below is present, the
patterns and waves are perfected and become visible to the experienced eye."
... (Required elements A thru D) ...
"E. Daily high and low range charted in such a manner as will disclose the waves of all
degrees as they occur.
The daily range of stock transactions was inaugurated in 1928 and the hourly record in
1932. These are necessary in order to observe the minor and minute waves especially
in fast markets." 2
15
Basically this tells us that detail is critical to allowing the perfectly formed waves to
become visible in all degrees. Will working down to within the hourly high and low range
disclose the waves of all degrees?
Certainly there will come a time when there is hidden detail or, Hidden Waves. This
would be caused by price action where more than can be seen of wave development
takes place completely inside the bar containers. That will make the counting difficult
but could it completely fool us about how the waves of the internal structure are building
the external or current degree wave?
Well no sooner did we get the ability to have more detail beneath the hourly record than
our question of disclosure of all degrees coming from just the hourly was answered.
There is self-similar fractal wave building going on at much smaller degree than hourly
detail will disclose. In fact the Elliott Wave phenomenon extends to the tick level.
This detail does play a part but what if you were working on much higher degrees?
Would detail from the lowest degree be required to accurately mark off wave progress?
This might depend on whether you are able to see all the detail necessary which is
present while the wave is building. Sometimes a closed bar does not show its whole
story and if you can no longer access this detail then assumptions must be made.
To be sure, enough detail is required to do this correctly but there is another aspect to
what has been obscured from view for so long. Another clue must be looked into.
16
This quiz is given by showing the following statement and instructing the person to read
it over just once, quickly. They are instructed not to re-read the phrase. The final
instruction is to count the occurrences of the letter F within it.
FINISHED FILES ARE THE RESULT OF YEARS OF SCIENTIFIC STUDY COMBINED WITH THE
EXPERIENCE OF MANY YEARS.
Well if you have never seen this one go ahead and count how many times you see the
letter F.
How many did you see?
It is an obvious trick question when presented in this manner and this is why it seems a
poor representation of a person's IQ but pop culture can still teach us. The results from
the quiz are that a vast majority will count three and then fewer will see four five and six
(six being the actual number).
Why do most people get the answer wrong? It is the sheer power of the mind that can
ignore visual fact and that reports back only those F's that sound like F's and ignores
those that sound like V as in the word OF.
It is clear from many real-life situations that our mind has such a power. This
powerhouse also has a known propensity to take shortcuts yes, we are also lazy.
Additionally we do what we are told to do.
There are actually all three of these elements in this clue to the variability problem for
which Mr. Elliott sought a solution.
Not only do we see what we want to see but we were told that Mr. Elliott alone had the
expertise to decipher his system. He was the expert. Any shortcuts of the practice which
he had institutionalized would persist. He was the Psychologist.
Here is where we will get into the breakdown of what went wrong. The common practice
which he had adopted partially or perhaps primarily due to lack of detail would become
our practice. It ultimately was a shortcut and we still do it to this day.
17
Chapter Three
The Devil In The Details
18
Notice the straight line method that is used to mark the wave progress. They are the
same technique. Detail is effectively reduced to a straight line and a progress label gets
assigned. Often the line would not be used and just a label is shown.
This is the universal method. There is nothing wrong with that. In fact it is practical
necessity that for the most part internal wave formation gets flattened to the currently
'significant' degree.
Being a practical method makes it become solidified in our mental processes. Breaking
that down further we would see that there is commonly a parsing of smaller waves
through what is basically a Casual Observation rather than an Actual Count.
An actual count of these smaller waves would require the same level of detail as in our
current degree and the same scrutiny that we are giving our current degree regarding
the compliance with the rules. That further breakdown may even require yet another
level of due diligence to be sure the build is error free.
19
If ever there was an opportunity for nurturing the tendency toward shortcuts and seeing
what we want to see this is it. Seeing a wave that appears to break in the middle? It's a
THREE. Case closed. B label applied on to the pivot, loaded weapon in hand.
We ALL do this. So did Mr. Elliott. The worse part is there are plenty of situations where
it is needed. Using historical data for which no more detail is available than on the
degree which you are using to analyze the counts is one such situation.
Remember that to handle current degree counts the relationship to the next higher
degree must be counted correctly. This will frequently call for less detailed data. It
sometimes cannot be helped.
There are also certain time and effort and motivation factors. In any case this jumping to
conclusions is a reality for at least part of some of the analysis situations which will be
encountered.
There is certainly no question that Mr. Elliott was motivated to expend whatever effort
that it would take to come to the right conclusions. As previously stated his work
produced remarkable results.
This effort and drive included some amazing guidelines that amount to workarounds for
the lack of a solution to the extensions warning. They included extraneous detail to the
wave prints themselves such as wave characteristics like volume. Also relied upon was
future wave development read back to validate the counts already concluded.
The fact that the market is a self-similar design at all degrees or, a fractal, makes it an
extremely complex structure. Elliott wave is a remarkably simple technique for its
analysis.
While Mr. Elliott was developing this system he found answers which eventually led him
to solutions to problems. He was, however, still in development mode under less than
ideal circumstances. He had what amounted to a huge deficit in available detail.
The only direction he could go to find answers, deeper down into detail, was not even
available to him. If deeper analysis would reveal that a THREE was not in fact what it
appeared then this factual information was lost.
It was under these conditions that rules and methods were engraved in stone.
Now we just do what we were told to do by the Chief Psychologist (and we take
shortcuts and see what we want to see).
20
Chapter Four
The New Elliott Wave Rule
21
The reason that these will no longer exist is that they never existed in the first place.
There is no such thing in Elliott Wave as an Extension!
Well that was easy now wasn't it? You will never again be wondering if an extension will
show up and ruin your expectation of the arrival of the next wave. It will not ever show
up because it never did. Yes I am repeating myself. That is just a little reinforcement
psychology!
Extensions were observed as something Extra and given a name. They did not fit into
the castings of regular wave structures so they had to be examined and identified and
classified.
This was done within the framework of the basic layout of the waves as they form in the
laboratory. In other words, the extension did not fit a theoretical Elliott Wave as Mr.
Elliott thought that they should form.
The waves actually form somewhat differently than he thought they do. This occurs in
certain waves and so it was not seen as a rule but more of an exception. He then
classified this exception and accepted its irregularity.
One more issue regarding things which were observed and catalogued should be
stated. Mr. Elliott has already observed the phenomenon which will become the new
rule for us. He basically split it up and categorized it as separate things with different
names and different descriptions in different degrees and saw some of it as something
which did not exist at all as part of waves. However the waves have always had it and
Mr. Elliott has seen it.
22
Rule Statement
The Statement of the New Elliott Wave Rule is as follows:
In Every 5th Wave and in Every C Wave, the 4th Wave WILL have a B Wave
which will set New Trend Price Territory.
Although this needs no different labeling, this should be given a term and so I have
called it a Retrending B or more simply an RTB Wave. The rule therefore states that
in those specific waves there will ALWAYS be a 4th Wave with an RTB.
Previously of course, this was observed by Mr. Elliott as already stated. However it was
never seen as something which always occurs because of the invention of the
extension which is just the effect of lower degree RTB's in the internals and so they
were not seen as such.
What he did already duly observe and label as an Irregular Correction is not in the
least irregular in the normal connotation and even in Elliott Wave connotation.
From his book in the section on Corrections (correction of a bull motive is shown):
What he does not show here is the actual correct depiction where the C wave will also
have an RTB 4th which would likely have caused him to draw the internals differently
had he known this as a rule (the still lower degrees would not show on this depiction).
23
That picture is how Mr. Elliott viewed some corrections. The count has been correctly
maintained in such a way that it was clear to him the B wave sets new price territory. It
is also indeed correct that this is only applicable to some corrections. He had other
formations listed and diagrammed which apply to other corrections.
The area of confusion which would give rise to the invention of an extension comes
where the lower degree internals in the previous wave would have many instances of
these RTB 4ths which would confuse the count and look just like an extension because
that is what had been decided that this effect was.
Examples with more internal detail follow but first a basic layout of what this looks like:
Room To Grow
In the original description of the fractal nature of Wave Analysis Degrees a scale series
was developed from the bottom up. That bottom detail level was applied to the hourly
data set. We now have need to expand our series.
The original set contained 9 which went up from the hourly and on to cover century
scale and above. Glenn Neely, an Elliott Wave expert, has added 2 more below the
original 9 for smaller degrees of scale giving us 11.
There was also a deviation on the original graphic symbols which Mr. Elliott used which
became popularized but that set does not use the extra 2 degrees.
The consensus in these camps for assigning a Time Span Application to particular
degrees seems to be to avoid using one. The methods which are employed for
assigning time spans for application of a degree vary depending on where one looks.
Perhaps one of the methods for avoiding disagreements would be to standardize on
this with broad ranges.
As mentioned there is a need to expand the series once more. Therefore the unifying
approach must be to finally adopt one of the two most popular styles and add to it in the
most complete format yet and hope that we can all just get along. It is not a necessity
but we also have many languages in the world and that certainly keeps things
interesting, doesn't it?
25
http://newelliottwaverule.org/info/labels.htm
The table on the following page (included in the above graphics download) will show the
way that these scale additions will be used in the remaining diagrams in this book. That
first picture only used existing degrees so does not fit a proposed time span usage.
In applying the time span application guidelines it was once again not possible to agree
with multiple camps. In the interest of arriving at spans which will be the most accurate
and gain wider acceptance in the future some modifications were needed. It is hoped
that these modifications will indeed have a unifying effect.
As the new rule begins to reshape counting methods a new opportunity comes to
standardize labeling and therefore enhance agreement and collaboration among Elliott
Wave Technicians.
If you wish to download just the degrees table without the graphic symbols you may get
that here:
http://newelliottwaverule.org/info/degrees.htm
See the new degrees table on the next page.
26
Degrees Table
27
http://newelliottwaverule.org/info/ebookdiagrams.htm
This screenshot on the next page shows three degrees and by the third one there is a
lack of detail since the 30 minute timeframe is hiding the finer detail. By the time the 4th
degree is showing there is no real detail to observe.
More degrees will be included in some finer detail screenshots which follow but again
we want to just look at basic layouts first and become familiar with the new way to count
through a 5th or C wave and thereby avoid alternate or blown counts.
See next page.
28
29
Part of the proof of what wave is depicted in the marked up wave count as shown in the
grey ellipse of the inset overview comes from the clear distinction in the move down
from the top left of the ellipse The remaining required proof comes from the fact that
there is both lower and higher price areas than the move of which that ellipse covered
price action is a part (yellow highlighted area).
That makes the entire viewable price action within the inset a bullish move with a
correction which is highlighted in yellow in the blow-up of the inset.
Therefore the final area of the correction which is shaded with the grey ellipse must be
either a C of a Zigzag or the 5th of what would have been formerly known as an
Irregular Correction. Now we know it as the 5th of an RTB 4th wave's C.
That proves what the wave must be for the purpose of knowing that the new rule wave
counting applies to that area. This knowledge will aid in taking a bullish position at the
correct location.
For knowing which particular wave is in the yellow shading, however, the information
must come from larger degrees. This is where the new rule is of benefit. Since we now
have 4th waves which come in two major varieties it will help distinguish between them.
The 4th wave of any wave OTHER than 5 or C will NEVER set new price territory in its B
wave. So this becomes an inverse rule which gives better wave identification anytime
there may be questions arising from lack of detail in your data set.
The reason for the distinction that there are two major varieties is that the non-RTB 4th
has two minor varieties. These are those in which the B wave will either match the price
of the furthest extent of wave 3 exactly or will not reach that extent before the C. Either
of these two minor varieties being distinct from that of an RTB 4 th wave will still aid in
identification of the larger degrees.
The new rule gives additional benefits which we will discuss later.
More degrees could certainly be labeled but only in exploded view. However you can
still see this new rule in action in the lesser degree areas of that picture. One may carry
this down to the finest degree available or desirable, whichever comes first in meeting
your new goal of achieving definitive wave counts.
It is important to note that the B wave of the RTB 4th wave will contain a C wave which
needs to be counted the same way and so will also have a C that sticks out some too.
In this next shot we will observe 5 labeled degrees with additional degrees visible but
not labeled. Color highlights on the motives, a different color for each degree, have
been added to the labels to help visualize how the RTB 4th waves nest until finally the
cascade completes at the smallest 5th of 5 and the swing pivot is reached.
Again the known position within the count on the larger degree will have your method
switch to an A immediately after 3, expecting a retrending B wave complete with the
internal A B rtbC requirement of 2 motives and 1 corrective. Then look for the C to
be SEEN as it completes the 4th. That same process will now repeat 1 degree lower as
you have entered a smaller 5th and so on.
This is much easier to count than it is to describe especially now that you know what
must happen rather than suppose what may happen.
31
Now you have a few new things to remember to do your counts. However in the next
chapter you will see that you have much more to forget!
32
Chapter Five
A Simple Elegance Revealed
33
If you look over there you will see quite a few spare parts laid out.
There are some extra waves we won't be needing anymore. Anything in your motive
category aside from waves 1 through 5 will be out. Yes, that's just 1 to 5 (anything else
was an extension). This also means no letters in motive waves.
Not even going to be needing letters such as d, e, f, g, h, i.
This next group was also part of the whole indeterminate location thing and we never
really liked that anyway. I don't think anyone will be sorry to see these go.
There will no longer be any W, X, Y or even Z. No longer a need for these Double and
Triple Three things either. These also never actually existed but were a way in which
the previously unknown rule actions were identified they had a what, but without
definition as to how and why or when. They were often casual counts (shortcuts).
Yes it will just be counting 1, 2, 3, 4, 5, A, B, C. That is all for letters and numbers.
There were some other spare parts as well. In that small pile over there is a Failed 5th
wave. There is no such thing but there are Truncated 5th waves which hit the same
exact price extension as the 3rd wave. These just do not travel as far as one expects but
they still contain perfect counts in their internals.
Failure is not an option. Closed sessions or failure to report transactions in unregulated
markets may account for some minor discrepancies but the waves do not fail.
Remember it was Mr. Elliott who first stated that and I concur. The effect of mishandling
new rule wave formation would account for the idea of a failure in a 5th wave.
Speaking of this mishandling due to former methods, there are some other items in the
pile which do not serve the wave counting and only slow us down. Those are the ideas
about geometric shapes.
Shapes are not waves and waves are not shapes, they are waves. If after a correction
at one degree there is a smaller degree wave 1 and 2 and before wave 3 really gets
going there is an even smaller degree 1 and 2 and you see a triangle, well I do not mind
if you call it a triangle. I will call it by wave progress alone. Flats are the same.
Price runs into resistance or support but that will not make a wave count unless all the
internals are satisfied. Shapes are extraneous distractions but if one prefers to take
time with them, ok. It will not change the counts so it will not help find your swing pivot.
Well the last item we needed to remove is over in the corner. This particular one is
responsible for not letting the valves operate smoothly so optimum efficiency and
performance were not possible. It was firmly attached to the extension but we got it off.
There will no longer be a governor on the travel of 4th waves. They will not always
overlap into wave 1 territory but they can and certainly do sometimes exceed even
wave 2 especially in leveraged instruments. Just count the waves and let them roll.
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Limitations on wave 4 travel was not consistent but was changed over time in Elliott
Wave. This reflects the dealing with unexpected results and the developing nature of
the system's rules without sufficient detail.
Despite the infinite variety every wave can always be counted in the same way. They
may go where they will but you will now be able to track their progress.
The above picture of theoretical waves shows that variety but the method remains
constant. Details of internals will be tracked in the same way to prevent surprises.
Those internals will also show that those two variations would differ visibly and in price
movement only, and never in actual internal wave count. That is simple elegance.
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Chapter Six
The Key To It All
A Different Road
Do you now have a different perspective and a different viewpoint on Elliott Wave and
how to count waves? I am sure you do. It is impossible to look at them in the same way
as before once you see them in light of the new rule.
Now you will begin to travel down a different road with me. How is it that this journey
started? How did the recognition of the new rule come about? It is quite remarkable
actually but it is not anything like you may suppose.
The counts were originally done in the same manner as the former method dictates.
The results were the same as well, good but could be better. All practitioners had blown
calls or waited in the alternate count lobby.
I did not penetrate the psychology of seeing what you expect to see all on my own. The
way was not suddenly illuminated.
It came in a rather strange way. So strange that I do not even have to count waves at all
anymore. The numerical relationships which power Elliott Wave have other ways in
which they show their properties.
I do not mean to imply that I understand all of it, far from it. I basically chased down a
numerical oddity as I was first learning technical analysis and through that adventure
discovered that there is a Key to each Wave which the waves themselves generate.
Within about two years of discovering that Key to the Waves the New Rule was
confirmed. I have known about the new rule for over four years as of this writing.
That extreme accuracy of the Key and knowing the true way in which waves formed is
what allowed me to discover something entirely new. The Key itself is not something
which I can go into detail about because it is employed in a proprietary manner in a
commercial trading system I developed in late 2007. You see it advertised here in this
book, that is of course the Supertradesystem. Along with speed changes in trends and
trend change analysis the Key powers that system in a unique way which does not
require counting waves.
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Appendix
References
1
: The Wave Principle, R.N. Elliott 1938 as published in The Major Works Of R.N.
Elliott, Robert Rougelot Prechter, Jr.
Price patterns in markets create distinct sub-movements called waves. The structure of
the wave has waves as well. Here is shown a market cycle consisting of wave ( i ) and
wave ( ii ). Inside of both waves ( i ) and ( ii ) is another set of waves. These waves
make up the larger wave. Waves ( i ) and ( ii ) are a larger version of 1 and 2 and will
become part of an even larger wave. This continues in both directions as larger and
smaller wave structures and are known as degrees of scale.
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The 5th and the C wave show the Retrending of the B wave inside their respective 4th
waves. Wave detail is hidden in the Waves ( i ) and ( ii ) and .1 and .2 as is often the
case until further exploration of lower degree internals. Wave 5 of ( i ) shows two
degrees of RTB 4th waves and wave C of ( ii ) shows one degree of an RTB 4th wave.
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