# NeoWave Wave Theory by Glenn Neely. Description of the second rule for the ratio of wavelengths and conditions for its implementation

13 min readWe continue to consider the rules for the relationship of wavelengths of the wave theory of NeoWave (from the famous book by Glenn Neely “Elliott Wave Analysis Skill”).

If you hear about NeoWave theory for the first time, then to close the gaps I recommend starting the study in order.

## Rule 2

Wave m2 moves in the opposite direction with respect to m1 and reaches from 38,2% up to 61,8% (not including) its length. When measuring the ratios m0 to m1, we select one of the following conditions and assign the structure symbols corresponding to the selected condition to the waves.

### Condition (a). m0 less than 38,2% m1.

Mark the completion point m1 «:5».

1. If m4 does not exceed the level of m0, there is a high probability, that m1 completes the correction price figure of a complex configuration. Its x-wave is m2, therefore, in the vicinity of its endpoint, the notation «x:c3», and around m1 – «:s5». Remind you, what about the basic price figures and structural designations I talked about in the second article.

but, if among the waves m(-1), m1 and m3 the shortest is the wave m(-1) or m3, and the length of the longest among them is about 161,8% or more of the next wavelength from the list and the amplitude m4 is not less than 61,8% length m3, there is a high probability of the formation of a pulsed price pattern, in which the studied wave m1 is the central phase (third segment).

3. If m0 consists of more, than from three monowaves, and m1 reaches the initial level preceding it m0 in a time less than or comparable to the formation time m0, then m0, apparently, is the final segment of an important Elliott price figure.

4. If m0 and m2 have approximately equal durations or correlated with a coefficient of 0,618, and their amplitudes correlate with a coefficient of 0,618 and length m(-1) is at least 161,8% length m1, and the wave m3 or a group of waves starting from it has an amplitude, exceeding length m(-1) for a period of time, not exceeding the formation time m(-1), then in the current market situation with a high degree of probability one of the varieties of mobile correction is formed. Therefore, in the structural list m1 after the introduced notation «:5» should be entered «[:c3]» (I will remind, that square brackets indicate, that the probability of the correctness of this hypothesis is too high, and the correction is called mobile, if it is flat and its wave b ends much higher, than the top of the previous boost). Probably, the beginning of the mobile correction is located on the wave m0, and its end is the wave m2. After that, as you will learn in subsequent articles, how to group structural notation, in such situations, you will first determine the type of mobile correction. «:c3» here it can act as a b-wave of a mobile correction or as an x-wave of a mobile correction of a double three.

Now let’s talk about additional circumstances, that may arise in this situation:

If m0 and m2 have approximately equal durations, m3 amplitude is less than 161,8% length m1, and length m(-1) longer than m0, then m1, apparently, is part of a complex correction, x-wave. There are three positions, in which the x-wave can be located:

a. if m(-2) shorter than m(-1), then the x-wave is located at the end of m0;

b. if the amplitude m4 is not more than 161,8% m3, x-wave is at the end of m2;

c. if the length m0 is not more than 50% amplitudes m1 and m1 are longer than m(-1) and m3, then x-wave, apparently, is an «invisible» and hides in the center of m1 (circle the middle of m1).

Depending on option, mark «x:c3?» at the end of m0 or m2 or in the middle of m1. It should be noted, that the option of placing the x-wave in the center of m1 is the least likely.

If m(-1) longer than m0, m0, in turn, shorter than m1, and m3 is not the shortest compared to m(-1), m0 and m1 and m3 (plus one unit of time) completely covered for a time less than or equal to the period of its formation, then m1, probably, is the third wave of the price pattern of the terminal impulse. So in the vicinity of its end should add the notation «:c3».

Consider the condition (a) second rollback rule by example.

Check the fulfillment of the criteria of the second rule. Wave m2, marked with a red line on the chart, reaches about 50% length m1, marked with green lines (m1 composite, its beginning and end are marked with red filled circles for clarity). Respectively, the condition of the second rule is satisfied, at which m2 is from 38,2% up to 61,8% (not including) length m1.

M0 is less than 38,25 amplitude m1. So the condition is fulfilled (a) the second rule and the termination point m1 must be designated «:5».

At the final stage, it is necessary to select the condition item corresponding to the current situation (a). m4 (turquoise horizontal line) does not exceed m0 level (pink horizontal line), which means there is a high probability, that m1 completes the correction price figure of a complex configuration. Its x-wave is m2, therefore, in the vicinity of its endpoint, the notation «x:c3», and around m1 – «:s5».

Subsequent conditions of the first clause of the condition (a) not executed, since even with a visual assessment you can see, that m1 exceeds m(-1) and m3 is much bigger, than 1.618 times.

### Condition (b). m0 from 38,2% up to 61,8% (not including) m1.

In the vicinity of the termination point m1, put the notation «:5».

1. If m4 does not exceed the final level m0, then m1, probably, is the final segment of the corrective price figure of complex configuration. The x-wave in this figure is m2, which means that near its end should be designated «x:c3?». At the endpoint m1, respectively, should indicate «:s5».

2. If m0 is a composite wave, consisting of more than three monowaves, and m1 completely covers m0 for a period of time less than or equal to the duration of formation of m0, then m0, probably, completes an important price figure. In the vicinity of the termination point m1, the notation «:5».

3. If the time and price projections of the waves m0 and m2 are related to each other with a coefficient of 0,618 are either equal, amplitude m(-1) is 161,8% or longer m1, the amplitude of m3 or the wave group it begins exceeds the length m(-1) for a period of time, not exceeding the duration of formation m(-1), there is a possibility of the formation of any of the varieties of mobile correction. This fact should be noted by the notation «[:c3]» after the notation already at the end of m1 «:5». Most likely, the beginning of the mobile correction is m0, and its end – m2. After that, how do you learn to group structural notation in subsequent lessons, in such situations, you should first determine the type of mobile correction. «:c3» here it can act as a b-wave of a mobile correction or as an x-wave of a mobile correction of a double three.

Now consider additional circumstances, that may arise in this situation.

If the lengths and durations m0 and m2 are approximately equal, m3 reaches or exceeds 161,8% m1, m4 exceeds m3 finish level (plus one unit of time) for a time, not exceeding m3 formation duration, then m1, Most likely, is part of a complex configuration. As in condition a, there are three options for the location of the x-wave:

a. at the end of m0;

b. at the end of m2;

c. in the center of m1 («hidden x-wave»).

The probability of the appearance of a hidden x-wave increases under the condition, that the amplitude m3 is less than 61,8% m1. At the proposed x-wave placement points, «x:c3?», and then, in the process of grouping monowaves, leave only one of the notation at the most probable point (we’ll talk about grouping in the next lesson).

If the price projections m0 and m2 partially overlap, and the time of formation of these waves is related to the coefficient 0,618, among the waves m(-1), m1 and m3 the shortest is m(-1) or m3, and also soon after the completion of m3, the price returns to the level of the starting point m1, then m1 may be a wave «:sL3», that is, to be part of the terminal price figure.

Consider the condition (b) For example.

Check, whether the requirements of the second rollback rule are met. Wave m2 (marked on the chart by a green line, and its beginning and end – red painted circles) is over 38,2% length m1. Means, the second rule holds.

Wave m0 is a little less than 50% wavelength m1. Respectively, the condition is satisfied (b) rules 2. In the vicinity of the termination point m1 we put «:5».

We will choose the item that is suitable for our situation and put down the appropriate structural notation. m4 (end point level is marked with a pink horizontal line) does not exceed m0 level (turquoise horizontal line). So m1, probably, is the final segment of the corrective price figure of complex configuration. The x-wave in this figure is m2, which means that near its end should be designated «x:c3?». At the endpoint m1, respectively, should indicate «:s5».

### Condition (c). m0 from 61,8% up to 100% (not including) m1.

In the vicinity of the endpoint m1 we put the notation «:5».

1. If m4 does not cross the final level m0, then m1, probably, is the final segment of a flat price figure of complex configuration. The x-wave in this figure is m2, which means that near its end should be designated «x:c3?». At the endpoint m1, respectively, should indicate «:s5».

If in the process of researching other waves the designation is preferred «:5», then wave m1, probably, completes an incorrect failed flat correction or zigzag rolling correction (these types of shapes will be discussed in detail in the following lessons, and now it’s enough to accept the fact, that m1 completes a zigzag or plane), or is part of a complex correction whose x-wave is located at the end of the wave m0 or m2:

a. If m(-2) shorter than m(-1), then x-wave, located at m0. Additionally, the probability of such a development of events is reinforced by the fact that, what m(-4) longer than m(-3).

b. If m(-2) longer than m(-1), then x-wave, located in m2. Moreover, amplitude m1 must be at least 38,2% length m(-1). And so that the probability of placing the x-wave in m2 was even higher, length m1 should be related to length m(-1) at least in a ratio of 0,618.

2. If the length m(-1) longer than m0, but is less than 261,8% length m1, m3 shorter than m1, and after the completion of m3, the market rapidly goes to the level of the starting point m1 or even crosses it, then m3 can complete the terminal price figure, which means that near the termination point m1 should be placed the notation «:c3».

3. If m0 includes more than three monowaves and m1 crosses the final level m0 in time, less, than the duration of the formation of m0, then with a high degree of probability m0 completes the important price figure of Elliot. In the vicinity of the endpoint m1, in this case we leave the notation «:5».

4. If m2 (plus one unit of time, t. e. the gap between two points of the base monowave) achieved in a time less than or equal to the period of its formation, m3 is longer than m1 in length and develops more intensively, than m1, as well as the amplitude m(-1) equal to or less than 161,8% length m1, then, probably, m2 completes the moving triangle (triangle, in which wave b is longer than wave a and wave d is longer than wave c). In this case, at the endpoint m1, the notation «:sL3»:

a. If m3, representing the so-called «outburst» the triangle, completely covered by wave m4, moreover, that the duration of the formation of m4 is less than the duration of m3, the triangle is bounding.

b. If m4 does not reach the level of the starting point m3 or reaches it over a period of time, significantly longer than m3 formation time, and also m4 is completely blocked by the next wave, then there are two options: or m3 will soon become part of the fifth segment of the terminal configuration, either we are dealing with a non-bounding triangle (more about bounding and non-limiting triangles we will talk in the next lessons).

5. If the amplitudes m3 and m(-1) are at least 161,8% length m1, then m2, Most likely, completes the wrong failed sequence. In this case, at the end point m1, add the notation «:c3».

Consider the condition (c) For example.

Wave m2 (marked on the chart by a green line, and its beginning and end – red painted circles) is about 50% m1, i.e. over 38,2%, but less than 61,8% length m1. So we can be sure, that the criteria of rule 2 are met.

Wave m0 is slightly less than 100% wavelength m1. Respectively, the condition is satisfied (c) rules 2. In the vicinity of the termination point m1 we put «:5».

We select the appropriate clause (c). Length m(-1) longer than m0, but even visually visible, that she is less than 261,8% length m1, m3 shorter than m1, and after the completion of m3, the market is rapidly moving to the level of the starting point m1 (turquoise horizontal line) or even crosses it (the pink line marks the level of the end point of the fall). And that means, in accordance with clause 2 of the condition (c), m3 can complete the terminal price figure, therefore, near the termination point m1, the notation «:c3».

### Condition (d). m0 from 100% up to 161,8% (not including) m1.

1. If the duration of the formation of m2 is equal to or greater than the formation time of m1 or m3, the endpoint m1 should be denoted «:5».

2. If the wave m2 (plus one unit of time) fully covered in time, not exceeding the duration of its formation, wave m3 is longer than m1, and the angle of its formation is more «vertical» compared to m1, the duration of the formation of m0 in time duration is at least 61,8% time duration m1, moreover, the durations of these waves are approximately similar, duration m2 is not less than 61,8% formation time m0 or m1, and also the length m0 is not more than 138,2% amplitudes m1, then m2 can be the final segment of a strict plane with a failed wave c (what is this figure, I will tell in the following articles). In this case, in the vicinity of the endpoint m1, we should add the notation «:c3».

3. If m3 is longer and longer «vertical» angle of formation, than m1, amplitude m4 is not more than 61,8% or not less than 100% length m3, m(-3) exceeds in length m(-2), m(-2) either m(-1) longer than m0, and also in the structural list m0 there is a notation «:c3», then m1 may be the penultimate wave of the tapering triangle. So, you need to add the notation to its structural list «:sL3».

4. If m3 is shorter than m1, m3 is covered not less, than 61,8%, the duration of formation m1 is inferior to the duration of m0, and the wavelength m2 is not inferior to the duration m1, hence m1, probably, is part of a zigzag, which ends with wave m3. In this case, the endpoint of the wave m1 should be denoted «:5».

Consider the condition (d) For example.

Wave m2 (marked with a red line on the chart) is over 38,2%, but less than 61,8% length m1. The main criterion of rule 2 is satisfied.

Wave m0 is from 100% up to 161,8% wavelength m1. Respectively, the condition is satisfied (d) rules 2.

In our case, two clauses of the condition are satisfied immediately (d). First of all, duration of formation m2 (blue area on the chart) equal to or greater than the formation time m1 (green Zone) and m3 (red zone). Hence, the endpoint m1 should be denoted «:5».

Secondly, in the process of visual assessment is clearly visible, that m3 is shorter than m1, m3 covers noticeably more than 61,8% its length, the formation time m1 is significantly inferior to the duration m0, and the wavelength m2 significantly exceeds the duration m1. Hence m1, probably, is part of a zigzag, which ends with wave m3. In this case, the endpoint of the wave m1 should also be designated «:5».

### Condition (e). m0 over 161,8% m1.

Regardless of the market situation, the most common structural designation of the wave m1 is «:5», which should be placed in the vicinity of the end point.

If m3 is shorter in length and has more «horizontal» angle of inclination compared to wave m1, then structural designation «:5» should be considered the only true.

If the wave start level m2 (plus one unit of time) achieved in time, not exceeding the duration of its formation, and m3 is longer in length and has more «vertical» angle of formation compared to m1 and price projections of waves m(-1) and m1 do not overlap, then the most likely option is a complex correction with «invisible» x-wave, located in the middle of m0. The last segment of such a correction, probably, will be the wave m2. In this case, it is worth adding the notation to the structural list of the wave m1 «:c3», and also put a point in the center of the wave m0 (preferably in the region of the wave termination level m1). The symbol to the right of this point «x:c3?», and on the left side – «:5».

Wave m2 (marked on the chart by a green line) is over 38,2%, but less than 61,8% length m1. Hence, Rule 2 requirements are met.

The m0 wave is over 161,2% wavelength m1. Respectively, the condition is satisfied (e) rules 2.

The m3 wave is shorter in length and has more «horizontal» angle of inclination compared to wave m1. It means, what’s the structural designation «:5» should be considered the only true. Additional condition requirement (e) not performed.