Wave theory description
According to the wave theory, the current market status should be in the small third wave. We can compare this with the description of wave 2 to see if it matches.
Wave 1: Bottom building starts
This phase is part of the bottoming process, with a significant increase in market volume and width, but is generally viewed as a large rally.
Wave 2: Cleaning up and washing dishes
The adjustment amplitude is large, usually retracing most of the first wave (sometimes even close to the starting point of the first wave), the trading volume shrinks, and the fluctuation range gradually narrows. The market generally believes that the bear market is not over yet.
Wave 3: Strong rise
This is the most explosive stage, with usually the largest rise and space, and often evolves into an extended wave. The trading volume has increased significantly and the upward momentum is strong.
Wave 4: Profit Taking
The fourth wave mainly creates conditions for the rise of the fifth wave, and the morphological structure often manifests as a triangle adjustment pattern.
Wave 5: Continued Rise
This stage is usually accompanied by severe price overvaluation (the formation of a bubble). The increase in the fifth wave is usually smaller than that in the third wave. The previously leading sectors or coins may take a back seat, while the originally weaker sectors generally rise; trading volume begins to deviate, market sentiment is high, and optimism is abundant.
Wave A: Adjustment and turning wave
This wave follows the 5th wave, so most people in the market still believe that the overall trend remains the same and lack psychological preparation for a decline. They usually regard the decline as a short-term adjustment and expect to continue to reach new highs after the adjustment.
Wave B: Rebound and Trend Wave (Bull Trap)
Most people in the market still believe that this is the beginning of a new round of rise, but at this time the trading volume is sparse, price and volume deviations often occur, and the upward momentum is obviously insufficient.
Wave C: sharp decline
The completion of wave B makes the market realize that the bull market is over, and the hope of continuing to rise is shattered, so the market usually experiences an overall decline. Wave C is more destructive.
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illustrate:
Wave A and wave C are often regarded as twin brothers. If wave A exhibits a 5-wave pattern, wave C usually also requires 5 waves to end. However, from the perspective of time period, if the decline speed or amplitude of wave A is too large, wave C may unfold by exchanging time for space.
