# NeoWave Wave Theory by Glenn Neely. Rollback rules and the first rule of wavelength relationships

11 min readElliott wave theory as a method of technical analysis of markets never loses relevance in exchange trading. The development of wave analysis is an important step in the development of the trader.

In today’s article, we will continue to examine the current interpretation of the Elliott Wave Theory, described by Glenn Neely in a book “Elliott Wave Analysis Skill”.

This time I will talk about rollback rules, also called wavelength relationship rules in “Mastery of analysis” Glenna Neely. so, go!

## When and how to apply rollback rules?

Rollback rules are designed to improve the accuracy of the description of the behavior of monowaves, therefore, it is recommended that they be used immediately after determining the endpoints of all monowaves under study. However, Neely does not recommend using them to analyze very complex graphs, in which it is necessary to simultaneously identify more than two dozen monowaves.

At the initial stage, it is necessary to select chronologically the earliest monowave among those, which you intend to research. If you, eg, intend to explore five monowaves, should start with that, which was formed before everyone else.

Mark it conditionally m1, and the next one – m2, then calculate the proportions m2 to m1. Use Fibonacci grids to quickly determine proportions. Next, use the rules table below to, to understand, what rule should be guided in a specific market situation.

**Rule table**

Rule number | Terms (ratio of m2 to m1) |

1 | less than 38,2% |

2 | from 38,2% up to 61,8% |

3 | 61,8% |

4 | from 61,8% up to 100% (not including) |

5 | from 100% (inclusive) up to 161,8% (not including) |

6 | from 161,8% (inclusive) up to 261,8% (inclusive) |

7 | More than 261,8% |

To further clarify the market situation, it may also be necessary to calculate the proportions of the waves m0 and m1, and when working with rule 4 – the ratio of the amplitudes m2 and m3. During the study, waves should also be noted in advance, which precede m0. Remind you, that they should be marked with negative indices, i.e. m(-1), m(-2) and t.d. In each rule I will describe the conditions of the so-called informal rules of logic. It is worth noting, that m0 and m2 do not have to be monowaves. They can also be composite waves and include 3, 5 and even more monowaves.

Another important point is the margin of error. For example, do not exclude any possibility just because, that the wavelength m2 is 60% m1, whereas the rule states, that it must be at least 61,8%. For all Fibonacci ratios in the NeoWave theory, 4 is allowed% deviations in both directions. If one of the rules says, that m2 should be 61,8% amplitudes m1, then in fact proportions from 58 are acceptable% up to 66%. In some cases, more serious deviations are acceptable (to 10%).

But the values of the ratios of the duration of the previous price figures should be taken literally and the minimum errors in the interpretation of these parameters are unacceptable. As you study the rules, you will often come across the phrase «if the initial level is m1 (plus one unit of time) achieved in time, not exceeding the duration of the period of its formation», which should be taken literally.

Here you need to be reminded, that the unit of time in NeoWave theory is the time interval between two consecutive points in the graph, that is, the time interval between the beginning and end of the simplest monowave. In the case of the above expression, one unit of time should be added to the total number of formation of units of time m1. for instance, if m1 is the simplest monowave, then the total amount will be 2 units of time, and if polywave (composite wave), which is formed within 5 units of time, then – 6 units.

Our ultimate goal is the transformation of the rules described below into structural designations of waves, which I talked about in a previous article. This will help us more accurately determine how the price figures themselves, and the position of each of the segments inside them. Remind you, that we examined structural designations in detail in a previous article.

## Rule 1

If the wave m2 moves in the opposite direction with respect to m1 and reaches less than 38,2% its length, then, when measuring the ratios m0 to m1, we select one of the following conditions and assign the structural notation corresponding to the selected condition to the waves.

### Condition a (m0 less than 61.8% m1)

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

but, if length m(-1) makes from 100% up to 161,8% (inclusive) length m0, and the amplitude is m0, in turn is about 61,8% of length m1 and m4 does not intersect the level of the endpoint m0, then the investigated wave m1, probably, ends with a flat price figure of complex configuration, in which m2 is an x-wave. It must be marked with «x:c3», and at the end point of the wave m1 put the notation «:s5». Remind you, what about the basic figures I told in the last lesson.

2. If m1 reaches the initial level m0 in a time less than or equal to the duration of formation of m0, and m0 consists of more than three monowaves, then m0, probably, completes an important price figure. Mark this on the chart «:5» – five. Subsequently, depending on the results of analysis of other waves, this structural designation can be replaced by a more accurate.

3. If the price amplitudes and wavelengths m0 and m2 are almost identical or correlate with each other in the proportion 0,618, and the amplitude m(-1) greater than or equal to 161,8% of length m1 and m3 reaches length m(-1) for a period not exceeding the formation time m(-1), it’s worth talking about the formation of mobile correction. Remind you, that mobile correction is a type of flat correction, in which wave b completes markedly higher (if the larger trend is bullish), than the top of the previous boost. Or noticeably lower, than the bottom of the previous slide, if a larger trend is bearish. Therefore, to the mark «:5» at the end of m1 you need to add the notation «[:c3]».

In the case of the formation of a simple mobile correction, its beginning in most cases will be the point m0, m1 will be a b-wave, and m2 – final c-wave.

If m(-2) shorter than m (-1) and length m3 161,8% length m1, then, probably, double triple formed, starting with m(-2) and ending on the wave m4. m1, respectively, is the x-wave of this structure and therefore in its structural list to «:c3» should add «x» (x:c3).

4. If the durations and lengths of m0 and m2 approximately coincide or are related to the coefficient 0,618, wherein, amplitude m(-1) less than 161,8% length m1, and also exceeds the length m0 and the wave amplitude m3 or m5 is at least 161,8% m1, and the initial level is m3 (plus one unit of time) achieved over the period, not exceeding the duration of m3, it’s worth talking about the formation of mobile correction, completing more than one price figure. In this case, after the designation at the end of m1 «:5» should be added «:c3».

The X-wave of such a correction can be located at the end of m0 or «invisible» (missing), hiding in the center area m1. TO «:c3» at the end of m0 you need to add on the left «x», and also enclose the central part m1 in a circle, write to his right «x:c3», and left – «:s5». About, what are the missing waves we will discuss in more detail in the following articles.

If the length m(-2) exceeds length m(-1), to the structural list of wave m(-1) designation should be added «sL3». In this case, the x-wave cannot be at the end of m0.

If the length of m3 is less than 61,8% amplitudes m1, then the probability of a missing wave in the middle of m1 increases markedly. In this case, you should use the previously added price designation «:5».

5. If the durations and lengths of m0 and m2 differ significantly from each other, price projections of these waves do not overlap, and the shortest among the waves m(-1), m1 and m3 is m(-1) either m3, then m1 may be a component of a large figure of the Trend Impulse. In this case, use the price symbol «:5».

Consider the following condition in the example below (a) rules 1.

First, check the conditions of the first rule. The m2 wave marked on the graph by the green line does not reach 38,2% wavelength m1, marked with a red line and consisting of two monowaves similar in direction. I will notice, that to plot the graph, I used the NeoWave V0 indicator, which I talked about in the first lesson.

Now let’s determine which of the conditions suits us. The wavelength m0 is less than 61.8% m1. Condition a of rule 1 is satisfied.

Now choose one of the clauses (a), which in our case will be relevant and thereby determine the component of which price figure is the wave m1. Durations and lengths m0 and m2 (price and time projections of these waves are marked by green areas) significantly different from each other, and their price projections do not overlap, which is clearly visible in the visual analysis of the graph.

Wavelength m(-1) is 176 points (red area), m1 – 583 points (green area) and m3 – 197 points (blue area) is m(-1). Respectively, the shortest of them is m(-1).

Hence, according to clause 5 of the condition (a), m1 may be a component of a large figure of the Trend Impulse, and we need to mark it with a designation «:5».

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

When the condition is met (b) at the end point of wave m1, place the structural designation «:5».

- If the amplitude is m(-1) is 100–161,8% (inclusive) length m0, and the final level m0 does not intersect with the wave m4, then m1 is most likely the final wave of the price plane, located within a complex configuration, where m2 is an x-wave. Therefore, at the end of m1 you should write «:s5», and at the end point m2 – «x:c3». In certain situations, additional structural designations may be required, a list of which is given below.
- If m0 includes more than 3 monowaves, and m1 (minus one unit of time) reaches the level of the initial point m0 for a time period less than or equal to the duration of formation m0, then m0 can complete a significant price figure.
- If the price projections m2 and m0 partially overlap, and m(-1) longer than m1 and m3 longer than m1, moreover, that its duration is equal to or less than the duration m1, add the designation m1 to the structural list «:sL3».
- If the price projections m2 and m0 partially overlap, m(-1) shorter than m1, m3 is longer than m1, moreover, that its duration is equal to or less than the duration m1, and the lengths and/or durations m1 and m0 differ markedly and m4 or a group of waves m4–m6 reaches m1 starting point level within 50% time, for which waves m1 are formed– m3, then m3, probably, completes the figure of the 5th extended terminal figure (I’ll talk about her in the next lessons). Therefore, it is worth adding the notation to the structural list m1 «:c3».
- If m3 is shorter than m1, price projections m2 and m0 partially overlap, m(-1) longer than m0, the shortest of the waves m(-1), m1 and m3 is m(-1) or m3, and also after the completion of wave m3, the market returns to the initial level m1 or surpasses it in a period equal to or less than half the time of formation of waves m(-1)– m3, then put the notation at the endpoint m1 «:c3».

Consider the condition (b) rule 1 by example.

Check the fulfillment of the criteria of the first condition rule (b). The m2 wave marked on the graph with a short red line does not reach 38,2% wavelength m1, marked with a longer green line. Means, this case relates to rule 1.

The wavelength m0 is almost 78,6% m1, that is, ranging from 61,8% up to 100% m1. Condition is met (b) rules 1. For clarity, I marked the beginning of m0 with a red filled circle, since the endpoint of the previous wave m(-1) tolerated according to the rule of neutrality, which I talked about in the first article, devoted to wave analysis according to NeoWave theory.

It remains to choose a suitable clause (b). Amplitude m(-1) is almost 161,8% length m0.

Final level m0 (marked with a horizontal pink line) does not intersect with wave m4. Hence, clause 1 of the condition is met (b), and m1 is most likely the final wave of the plane, located within a complex configuration, where m2 is an x-wave. Therefore, at the end of m1 you should write «:s5», and at the end point m2 – «x:c3». Other clauses (b) not executed, we will not take them into account.

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

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

- If the price projections m0 and m1 are approximately the same (+/- 10%), time projections are either equal, either relate to each other with a coefficient of 0,618, m3 is longer than m1, moreover, that its duration is equal to or less than the duration m1, duration m2 is less than duration m1 and has a length, component of about 38,2% amplitudes m1, and also in the structural list m0 there is a notation «:F3», then add the notation to the structure list m1 «[:c3]». I enclosed the notation in square brackets, since in this situation the choice made is risky. Chances of justification «:c3» are increasing, if m2 ends at one of the important Fibonacci levels with respect to m0, m1 or previous impulse wave of any complexity.
- If m3 is superior in amplitude to m1, m4 terminates before reaching level 61,8% m3 or reaches entry level m3, length m2 is about 38,2% amplitudes m1, m(-3) longer than m(-2), and m(-2) either m(-1) exceeds 0 in length and the structure m0 includes the notation «:c3», then m1, probably, is the penultimate wave of a tapering triangle. So, in the structural list m1, we should add the notation «(:sL3)». But even if all the above conditions are met, the assumption about «:sL3» should be considered less likely compared with the condition put forward at the very beginning of the description of the condition (c) hypothesis of «:5», so I put it in parentheses.

Consider the condition (c) For example.

In our case, the first rule holds, since m2 does not reach 38,2% wavelength m1, marked with a red line and consisting of two monowaves similar in direction.

Wave m0, marked with a green line, is over 100% amplitudes m1. So the condition (c) the first rule is fulfilled. Therefore, in the vicinity of the endpoint m1, I added the notation «:5». None of the two special cases of the condition (c) not performed, therefore, the structural list m1 at this stage can be considered complete.

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

In this case, the choice of the optimal structural designation is extremely modest. If the amplitude m0 exceeds 161,8% length m1, then in the vicinity of the end point m1, we should add the structural notation «:5». It is also worth noting, that condition d is rarely satisfied, although one of the easiest to analyze.

That’s all. In the next tutorial, we will move on to the second rule of wavelength relationships.