This is the final part 3 of the article âThe classic Elliott Wave theory is dead â Long Live the Modified and Better Elliott Wave theory!â. Itâs about discovery that the price goes up parabolic when the majority of traders including taxi drivers is convinced that it is time to buy that stock. That C wave down is supposed to either retest the low made by the first leg of wave A of 4 (under a regular flat corrective structure ) or even break under that low ( under an expanded flat corrective structure ). Based on that research, Copsey proposed strong guidelines for strategies to apply the new "harmonic" wave structures to financial markets. If you look at the chart 9 below, you will see that according to the Harmonic Elliott Wave theory in each five wave fractal there are three major waves in the direction of the trend: 1, 3 and 5. And he labels that second move up as wave ( i ) of 3 up and wave ( ii ) of 3 down. This when wave 3 tops and when everyone who could buy finally buys that stock. Then in 1990s Ian Copsey, a veteran FX trader and analyst, proposed a simple change to the five wave fractal that became a game changer. According to R.N.Elliott, the wave 4 can not enter into the territory of the wave 1 (please see the chart 14 below). USD/JPY – Crab pattern We are recommending this trade in our program. He knew that wave 3 is not coming at the second move off a major low. I used to practice the classic version of the Elliott Wave theory for several years. Trying to fit the actual chart with all its noisy micro moves into that rigid template of five waves inside each impulsive wave they loose connection to a natural rhythm of the market. David counted the first move up off the low as wave ( a ) of 1 and the second move off the low as wave ( c ) of 1 (please see the chart 11 below ). In the previous two parts of this article I explained what an amazing discovery made R.N.Elliott when he noted that markets not only follow similar patterns but those patterns are also subdivided into fractals, similar patterns of smaller size. Especially at the end of wave 5, a trade can catch all wave A-B-C and profit hundreds of pips. Harmonic Elliott Wave: The Case for Modification of R. N. Elliott's Impulsive Wave Structure explains what's wrong with the Principle, outlining a modification that allows for more accurate trading predictions. You can keep changing the weights of inputting data for years and you will never be able to make it work better! There is a dramatic difference how the classic and modified theories treat the first move up off a major low (see the chart 3 above ). In addition, the classic theory treats such an impulsive move up as a wave ( i ) up. But John understands that it is time to forget about that wave C of 4 and forget about lower lows. He gets a corrective decline in wave (b) down of 5 up. However, where Elliott calls these Waves (1), 1 etc I label them Wave (a) and Wave (c) which are both 5-wave moves. The easiest thing to look at is wave 3 - very long and strong. Below is one more example of this setup. Now lets see if the classic Elliott Wave theory offers you such an efficient tool of setting a hard stop loss. His expectations about an extent of the second rally were reasonably limited and he knew where that rally would most likely stop, at 114.6%, 123.6% or 100% extensions of the first rally counted as ( a ) up. For example, if wave ( a ) of 3 normally tops at 114.6% or 123.6% extensions of wave 1 then wave ( c ) of 3 stretches to 176.4%, 185.4% or 223.6% extensions of the same wave 1 up! + Write your review . Because that weak and slow rally is not strong and fast enough to switch the sentiment of the market participants into a rally mode when traders feel euphoric and price for call options skyrockets. 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