Missing Waves and Emulations. Definition. Variations. Properties.
In the previous training articles, I covered the application of channeling and Fibonacci relationships. This article will deal with the last section in the NeoWave series, I will describe missing waves. I will also write about patterns, which, in many ways, can imitate other variations of wave patterns, not being authentic Elliott patterns.
If you are not familiar with the NeoWave theory, I recommend you to read all the articles, starting from the first one, in the NeoWave series based on Glenn Neely’s book Mastering Elliott Waves.
Before I go on, I want to stress that all the examples below are drawn schematically, they are not real price charts. I suggest you find real examples by yourself and share your discoveries in the comments. Practical application of the information you learn is a very efficient way to develop new skills. If you haven’t yet selected a trading platform to practice your trading skills, register an account with LiteForex. This is fast, easy, and free of charge.
Where and when do missing waves occur?
The identification of missing waves plays an important role in the analysis of short-term market action. You can witness missing waves when the available data create a price action that falls between the monowave and polywave stage of development. A missing wave is a wave that merges with the surrounding segments of the pattern into a single monowave. Missing waves occur only on a polywave scale. Missing waves can’t occur on a multiwave scale or higher. Missing waves are most common in non-standard complex corrective polywaves. They are also possible in Impulse polywaves or in a formation when the market is preparing to make a significant change in trend. A missing wave can be detected indirectly based on the illogical integration of pattern implications and based on the strange development of price behavior, which I will further describe.
How do missing waves occur?
As you already know from the previous educational articles all Elliott patterns require a minimum number of monowaves to be correctly formed. For example, an impulse polywave must contain at least five segments, it can’t be formed with only four monowaves. A correction requires at least three monowaves. To make a specific number of monowaves, you should have a specific number of data points. Here is a listing of the minimum data points for polywave patterns, so that a pattern can form without missing waves:
- Impulse wave – 8;
- Triangle – 8;
- Zigzag – 5;
- Flat – 5;
- Double flats and zigzags – 10;
- Double combinations ending with triangles– 13;
- Triple flats and zigzags – 15;
- Triple combinations ending with zigzags– 18.
As an example, the above BTCUSD chart roughly outlines a polywave flat correction. Red dots mark data points that are the beginning and the ending points of monowaves. Note that the beginning of the pattern (zero point) is also taken into account. In our example, there six data points, so the pattern meets the minimum requirements for the number of points. I should note that the presence of the minimum number of data points doesn’t mean that the missing wave is impossible here, it is just less likely. Neely writes that for each additional data point above the minimum, the chances increase geometrically that a missing wave will not be present. Once the number of data points reaches twice the minimum level a missingwaveshould be considered impossible, as there will be too many details that any wave could be missing. Any number of data points below the minimum indicates a missing wave is a certainty if the wave count is correct (the number of data points should be at least 50% of the minimum requirements, otherwise the pattern will be so simple that it will be on the register as a monowave).
Remember, you can suspect a missing wave when analyzing the waves using the retracement rules. These rules are covered in the parts 3-11 in the NeoWave series:
Which patterns are susceptible to missing waves?
The most susceptible patterns to missing waves are complex corrective polywaves(corrections that involve x-waves). Almost without any exceptions, the (X) will be the missing wave. This is due to the fact that x-waves are almost always the smallest corrective waves of such patterns. That is why they are more likely than other segments to be missing. In more rare instances, impulsive polywave patterns that have a 1st or 5th wave extension can “miss” their smaller corrective phase. In a 1st wave extension, it would be wave 4. In a 5th wave extension, the missing wave would be wave 2.
An emulation occurs when one pattern (corrective or impulsive) is imitatingthe behavior of a pattern from the opposite class. Most often, an emulation occurs on the short-term price action of a polywave. When one pattern emulates another, it generally indicates the pattern is “missing wave,”. Below, I will give a few examples of patterns emulating the behavior of other Elliott patterns.
Double Failure Emulation
This pattern can only fool you during its formation and for a short time period of time after it is complete. Most often, a double failure can temporarily mislead you into the assumption that a Triangle is forming.
The above chart roughly outlines a double failure. It is emulating a triangle at the stage of its formation. I marked the borders of a false triangle with pink lines. You can identify this pattern at the stage of the wave (D) formation. As it exceeds the highs of waves (A) and (B) (the horizontal green and red lines), this pattern can’t be a triangle (in a contracting triangle, only wave (E) has such a possibility. An indirect clue can come from the application of Fibonacci relationships if waves (A) and (C) do not relate by 61.8% as it is typical in triangles. This signal may become a reason to suspect a false triangle forming, but the final conclusion should be made only after the (D) wave exceed the highs of waves (A) and (B).
Double Flat Emulation
This pattern, if missing the (X) wave, could easily be mistaken for an Impulse wave with a 3rd wave extension. There are a few clues the pattern is a double flat:
- There is noalternation in time, price, or structure between waves (2) and (4). The rule means that two close waves of the same type (within the same pattern) should be different in price, time, and structure.
- The supposed third extension is not more than 161.8% of the first wave. This signal means that the third wave is nor an extension. Therefore, the fifth wave should be an extension. If it doesn’t happen, the pattern can’t be an impulse.
The above chart roughly outlines a double flat that looks like a terminal impulse. Note that the supposed wave (2) is more than 61.8% of the supposed wave (1). Besides, the supposed waves (2) and (4) are similar in price, time, and structure. So, the alternation rule is not observed.
The supposed third extension is less than 161.8% of wave 1, and so, it is not an extension. As the fifth wave is not also an extension (it is less than the third wave in price), the pattern can’t be an impulse. So, this is a double flat correction that emulates an impulse pattern. If you witness a situation like the one shown in the chart, divide the longest wave in half (the red circle in the chart). The halfway point should be where a missing wave X occurred.
Emulation that occurs in Double and Triple Zigzags and other combinations starting with a zigzag
Wave (B) in the first zigzag should not retrace more than 61.8% of wave (A). Like in the case with the double flat, a double zigzag can look like an impulse with the third extension. However, in…