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  1. # Elliott Wave Pattern Recognition Framework
  2.  
  3. ## Wave Structure Adherence Verification
  4.  
  5. ### Impulse Wave (12345) Fibonacci Relationships
  6. | Relationship | Common Ratio | Description | Market Implication |
  7. |--------------|--------------|-------------|-------------------|
  8. | Wave 2 retracement of Wave 1 | 50-61.8% | Key retracement zone for Wave 2 | Healthy pullback maintaining overall trend |
  9. | Wave 3 extension from Wave 1 | 1.618× or 2.618× | Wave 3 typically extends beyond these multiples of Wave 1 | Strong momentum confirming trend strength |
  10. | Wave 4 retracement of Wave 3 | 23.6-38.2% | Shallow retracement preserving trend energy | Consolidation before final push |
  11. | Wave 5 projection from Wave 4 | 61.8-100% of Waves 1-3 | Measured move for final wave | Completion of trend cycle |
  12.  
  13. ### Corrective Wave (ABC) Fibonacci Relationships
  14. | Relationship | Common Ratio | Description | Market Implication |
  15. |--------------|--------------|-------------|-------------------|
  16. | Wave B retracement of Wave A | 50-78.6% | Normal B-wave retracement | Standard correction in progress |
  17. | Wave B exceeds end of Wave A | >100% | Expanded flat forming | Stronger counter-trend forces at work |
  18. | Wave C extension of Wave A | 1.618× or 2.618× | C-wave projection targets | Typical termination zone for corrections |
  19.  
  20. ## Pattern Identification & Market Implications
  21.  
  22. ### Truncated 5th Wave
  23. **Pattern:** Fifth wave fails to exceed the end of the third wave
  24. **Identification Markers:**
  25. - Wave 5 high < Wave 3 high
  26. - All other Elliott Wave rules satisfied
  27. - Often occurs after extended third wave
  28. - Usually shows momentum divergence on indicators
  29.  
  30. **Market Implication:**
  31. > A truncated fifth wave signals exhaustion in the prevailing trend and warns of an imminent reversal. This pattern demonstrates that buyers (in an uptrend) or sellers (in a downtrend) lack conviction to push prices to new extremes. Truncations typically occur in mature trends and often precede significant corrections or reversals. When combined with bearish divergences on momentum indicators, they provide reliable signals for potential trend changes.
  32.  
  33. ### Zigzag Correction
  34. **Pattern:** Sharp, direct A-B-C correction with clearly defined waves
  35. **Identification Markers:**
  36. - Wave A: Impulsive 5-wave decline
  37. - Wave B: Corrective retracement (typically 50-61.8% of A)
  38. - Wave C: Impulsive 5-wave move exceeding end of Wave A
  39. - Entire pattern has strong directional quality
  40.  
  41. **Market Implication:**
  42. > Zigzag corrections represent sharp counter-trend movements driven by significant profit-taking or position adjustment. They typically move quickly and offer less favorable risk/reward for counter-trend trades. The completion of a zigzag often presents an excellent opportunity to re-enter positions in the direction of the larger trend. Zigzags commonly appear as Wave 2 corrections in strong trends and signal healthy market behavior.
  43.  
  44. ### Flat Correction
  45. **Pattern:** Sideways A-B-C correction with B wave approximately retracing A
  46. **Identification Markers:**
  47. - Wave A: Often 3-wave structure (corrective)
  48. - Wave B: Retraces 90-100% of Wave A
  49. - Wave C: Terminates near the end of Wave A
  50. - Entire pattern has sideways, consolidative quality
  51.  
  52. **Market Implication:**
  53. > Flat corrections indicate balanced market forces and typically occur in mature trends or as fourth waves. They represent consolidation rather than reversal and often precede continuation moves. Regular flats suggest the underlying trend remains intact but lacks immediate momentum. These patterns provide excellent opportunities for entering positions in the direction of the larger trend upon completion, often with tight stop-loss levels.
  54.  
  55. ### Expanded Flat Correction
  56. **Pattern:** A-B-C correction where B exceeds start of A, and C exceeds end of A
  57. **Identification Markers:**
  58. - Wave B: Exceeds the start of Wave A (beyond 100% retracement)
  59. - Wave C: Extends beyond the end of Wave A
  60. - Often shows expanding volatility
  61.  
  62. **Market Implication:**
  63. > Expanded flats reveal increasing volatility and uncertainty in market direction. The excessive moves in both directions trap traders on both sides before resolving in the corrective direction. This pattern suggests emotional trading and often precedes powerful moves once completed. The deep C wave typically represents capitulation and creates excellent value for position entry against the correction, particularly when accompanied by classic oversold indicators.
  64.  
  65. ### Extended Third Wave
  66. **Pattern:** Third wave significantly longer than waves 1 and 5
  67. **Identification Markers:**
  68. - Wave 3 length > 1.618× Wave 1
  69. - Wave 3 showing strongest momentum and volume
  70. - Wave 3 often containing mini-parabolic move
  71. - Followed by shallow Wave 4 correction
  72.  
  73. **Market Implication:**
  74. > Extended third waves reveal powerful fundamental forces driving the market trend. This pattern shows conviction by institutional participants and typically occurs in strong bull markets or severe bear markets. The presence of an extended third wave suggests the underlying trend is powerful and sustainable. However, it also increases the probability of a truncated fifth wave, as much of the trend energy is exhausted during the extended third wave.