Elliott Wave Patterns & Fibonacci Relationships Reference Guide
Elliott Wave Theory attempts to identify recurring price movements within financial markets and to classify them into a set of meaningful patterns, which can become a reliable tool for future price predictions. The underlying principle is that price-action unfolds via an endless alternation between trending and corrective cycles, while producing this effect on any relative timescale (Fractality).
Elliott Wave (EW) price patterns are divided into motive waves (i.e. price movements that initiate progress in one direction and therefore create trend) and corrective waves (i.e. price movements that are reactionary in relation to the previous trend-setting move). Corrective waves essentially attempt to revert or undo the movement that was initiated by the preceding motive wave.
How to use this guide
This EW reference guide provides an idealized drawing for each EW pattern, including a visualization of the most important internal wave size relationships. The images highlight the most common wave retracement and extension targets in red, followed by the next most common targets in orange, followed by the least common targets in grey.
Important Concepts To Remember Before Applying EW Counts
Wave Degrees
Elliott Waves are labeled in different degrees that are nested within each other due to the fractal nature of price movements. Please refer to your Elliott Wave drawing software for the appropriate names and symbols used for each officially defined degree. Alternatively, you may simply label different degrees with different-colored labels on your chart.
Alternation (“expect a difference in the next expression of a similar pattern”):
EW patterns have the tendency to create alternation within them. This is reflective of nature’s general propensity towards dynamic balance. Following is a list of the main occurrences of alternation:
Alternation of corrective waves:
It is important that waves within a 5-wave or 3-wave sequence show reasonably balanced proportions to each other… not just in terms of size/magnitude (which can generally be verified by Fibonacci retracement and extension ratios), but also in terms of time duration. This balancing can occur either via alternation and/or via equality.
Consider the following as an example for ‘balance through alternation’: an impulse is showing a classic deep and short-lived wave 2, plus a shallow but time-lengthy wave 4. The time-lengthiness of wave 4 is in balance with the depth of wave 2, while the shallowness of wave 4 is in balance with the short-lived nature of wave 2, thereby creating balance through alternation.
The same need for balance applies for any motive waves within a 5-wave sequence (i.e. 1,3, and 5). The exception however will be the potentially extended wave within the sequence. It can/will be much larger in terms of magnitude and time than the other four waves, but the sub-waves (inside the extended wave) must show a balance to each other. The extended wave will also express relatedness to the other waves of the sequence by the angle of the overall price movement (that’s why impulsive motive waves travel quite neatly within parallel channel lines most of the time, even if one of the waves is extended).
Consider the following as an example for ‘balance through equality AND alternation’. Wave 1 and 5 of an impulse sequence are equal in size and duration (equality), while wave 3 is extended (alternation to waves 1 and 5).
Alarm bells should be going off when a potential wave 4 is starting to grow out of proportion in terms of size and duration relative to the other waves of the same degree.
It is dangerous to disregard the factor of balanced proportions during wave counting. Disproportionate and misshapen patterns should be seriously questioned.
The ‘right look’ may not be evident at all degrees of trend simultaneously, so it is best to focus on the degrees that are the clearest.
Elliott Wave (EW) price patterns are divided into motive waves (i.e. price movements that initiate progress in one direction and therefore create trend) and corrective waves (i.e. price movements that are reactionary in relation to the previous trend-setting move). Corrective waves essentially attempt to revert or undo the movement that was initiated by the preceding motive wave.
How to use this guide
This EW reference guide provides an idealized drawing for each EW pattern, including a visualization of the most important internal wave size relationships. The images highlight the most common wave retracement and extension targets in red, followed by the next most common targets in orange, followed by the least common targets in grey.
Important Concepts To Remember Before Applying EW Counts
Wave Degrees
Elliott Waves are labeled in different degrees that are nested within each other due to the fractal nature of price movements. Please refer to your Elliott Wave drawing software for the appropriate names and symbols used for each officially defined degree. Alternatively, you may simply label different degrees with different-colored labels on your chart.
Alternation (“expect a difference in the next expression of a similar pattern”):
EW patterns have the tendency to create alternation within them. This is reflective of nature’s general propensity towards dynamic balance. Following is a list of the main occurrences of alternation:
Alternation of corrective waves:
- If wave 2 is sharp (i.e. zigzag or extended zigzag) and deep (i.e. deep in the sense of how much it retraces the preceding wave 1), then wave 4 will most likely going to be sideways (flat, combination, or triangle) and shallow relative to wave 3. The same applies in reverse but is less common. This is because triangles (which only appear during wave 4 inside a motive wave) are considered to be alternating to all other corrective patterns. That means even if wave 2 is a shallow sideways correction, a triangle can still appear in wave 4, but it is less likely.
- Alternation also occurs in terms of wave complexity. If a potential bigger complex correction starts out simple at first, then expect complexity to increase during the following parts of the correction (i.e. simple-complex-most complex). The reverse can also apply (i.e. most complex-complex simple) but it is more rare.
- If wave 1 is short, then wave 3 is likely to be extended, and wave 5 likely to be short again. If wave 1 is extended, then wave 3 and 5 are most likely not extended. If neither wave 1 nor wave 3 is extended, then wave 5 probably will be extended. If wave 3 is extremely long and overstretched, wave is 5 more in danger of being truncated.
It is important that waves within a 5-wave or 3-wave sequence show reasonably balanced proportions to each other… not just in terms of size/magnitude (which can generally be verified by Fibonacci retracement and extension ratios), but also in terms of time duration. This balancing can occur either via alternation and/or via equality.
Consider the following as an example for ‘balance through alternation’: an impulse is showing a classic deep and short-lived wave 2, plus a shallow but time-lengthy wave 4. The time-lengthiness of wave 4 is in balance with the depth of wave 2, while the shallowness of wave 4 is in balance with the short-lived nature of wave 2, thereby creating balance through alternation.
The same need for balance applies for any motive waves within a 5-wave sequence (i.e. 1,3, and 5). The exception however will be the potentially extended wave within the sequence. It can/will be much larger in terms of magnitude and time than the other four waves, but the sub-waves (inside the extended wave) must show a balance to each other. The extended wave will also express relatedness to the other waves of the sequence by the angle of the overall price movement (that’s why impulsive motive waves travel quite neatly within parallel channel lines most of the time, even if one of the waves is extended).
Consider the following as an example for ‘balance through equality AND alternation’. Wave 1 and 5 of an impulse sequence are equal in size and duration (equality), while wave 3 is extended (alternation to waves 1 and 5).
Alarm bells should be going off when a potential wave 4 is starting to grow out of proportion in terms of size and duration relative to the other waves of the same degree.
It is dangerous to disregard the factor of balanced proportions during wave counting. Disproportionate and misshapen patterns should be seriously questioned.
The ‘right look’ may not be evident at all degrees of trend simultaneously, so it is best to focus on the degrees that are the clearest.
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Rules:
An impulse consists of 5 internal waves.
Wave 1 and 5 always have to be impulses or diagonals
Wave 3 always has to be an impulse by itself (i.e. can’t be a diagonal)
Wave 3 must never be the shortest (in terms of percentage gain/loss) within the sequence
Wave 2 is always a corrective pattern and must not retrace more than 100% of wave 1
Wave 2 can be any corrective pattern except a triangle (but it can be a complex combination (wxy or wxyz) that ends with a triangle)
Wave 4 must not enter the price territory of wave 1
Wave 4 must always be a corrective pattern (any)
Guidelines:
Waves 2 and 4 tend to create alternation between each other (as outlined in the introduction of this guide)
Wave 2 usually retraces to deeper levels of wave 1 than wave 4 does relative to wave 3
Wave 2 develops more commonly as a simple corrective pattern (i.e. zigzag or double/triple zigzag)
Wave 4 develops more commonly as a complex corrective pattern (i.e. triangle, double/triple threes, flat)
In almost all impulses, one of the action waves (1,3, or 5) becomes extended, and it is most commonly wave 3
Extended waves can contain several further extensions within them
Wave 5 can fail to go beyond wave 3 (truncation) but it is not very common. It usually happens when wave 3 has been exceptionally long and overstretched. Truncation often results in significant reversals.
Wave 5 is most likely not going to form a diagonal if wave 3 is not extended
An impulse is not over until all sub degrees are finished (e.g. 5 of 5 of 5). The wave count takes precedence over channel lines and Fibonacci targets
Wave 3 almost always exhibits the greatest volume. If volume during the 5th wave is as high as the 3rd, expect an extended 5th wave.
Fibonacci Retracement and Extension Guidelines:
If wave 1 is extended, then the size of wave 3 through to the end of wave 5 is often 61.8% – 78.6% relative to the size of wave 1
If wave 1 is extended, then wave 2 and 4 are very likely to be shallow (i.e. 23.6% – 38.2%)
If wave 1 is extended, then wave 2 will often end at the level of sub-wave 4 of 1 (i.e. the internal wave 4 of wave 1)
If wave 2 retraces more than 78.6% of wave 1, the idea that it really is a wave 2 becomes more doubtful (possible A-B?)
If wave 3 is extended, then wave 1 and 5 are often nearly equal in magnitude and duration. If equality is lacking, a 61.8% relationship is next most likely.
If wave 3 is extended, then wave 4 often ends at the level of sub-wave 4 of 3 and is quite shallow (retraces 23.6% – 38.2% of wave 3)
If wave 3 is extended and very vertical, it will likely overshoot the trend channel that can be drawn when placing the anchor points at the extremities of wave 1, 2 and 4. However the channel is still very valid for gauging the end of wave 5 (see image)
If wave 4 retraces more than 50% of wave 3, it is quite often not a wave 4.
Wave 5 is likely to become extended if wave 1 and 3 are equal in size.
If wave 5 is extended, then it often finishes at the 161.8% extension relative to the magnitude of wave 1 through to 3 (see image)
If wave 5 is extended, then the ensuing correction is often sharp and swift and ends near the extreme of sub-wave 2 of the extension. This does not apply when the market is ending a 5th wave simultaneously at more than one degree.
An impulse consists of 5 internal waves.
Wave 1 and 5 always have to be impulses or diagonals
Wave 3 always has to be an impulse by itself (i.e. can’t be a diagonal)
Wave 3 must never be the shortest (in terms of percentage gain/loss) within the sequence
Wave 2 is always a corrective pattern and must not retrace more than 100% of wave 1
Wave 2 can be any corrective pattern except a triangle (but it can be a complex combination (wxy or wxyz) that ends with a triangle)
Wave 4 must not enter the price territory of wave 1
Wave 4 must always be a corrective pattern (any)
Guidelines:
Waves 2 and 4 tend to create alternation between each other (as outlined in the introduction of this guide)
Wave 2 usually retraces to deeper levels of wave 1 than wave 4 does relative to wave 3
Wave 2 develops more commonly as a simple corrective pattern (i.e. zigzag or double/triple zigzag)
Wave 4 develops more commonly as a complex corrective pattern (i.e. triangle, double/triple threes, flat)
In almost all impulses, one of the action waves (1,3, or 5) becomes extended, and it is most commonly wave 3
Extended waves can contain several further extensions within them
Wave 5 can fail to go beyond wave 3 (truncation) but it is not very common. It usually happens when wave 3 has been exceptionally long and overstretched. Truncation often results in significant reversals.
Wave 5 is most likely not going to form a diagonal if wave 3 is not extended
An impulse is not over until all sub degrees are finished (e.g. 5 of 5 of 5). The wave count takes precedence over channel lines and Fibonacci targets
Wave 3 almost always exhibits the greatest volume. If volume during the 5th wave is as high as the 3rd, expect an extended 5th wave.
Fibonacci Retracement and Extension Guidelines:
If wave 1 is extended, then the size of wave 3 through to the end of wave 5 is often 61.8% – 78.6% relative to the size of wave 1
If wave 1 is extended, then wave 2 and 4 are very likely to be shallow (i.e. 23.6% – 38.2%)
If wave 1 is extended, then wave 2 will often end at the level of sub-wave 4 of 1 (i.e. the internal wave 4 of wave 1)
If wave 2 retraces more than 78.6% of wave 1, the idea that it really is a wave 2 becomes more doubtful (possible A-B?)
If wave 3 is extended, then wave 1 and 5 are often nearly equal in magnitude and duration. If equality is lacking, a 61.8% relationship is next most likely.
If wave 3 is extended, then wave 4 often ends at the level of sub-wave 4 of 3 and is quite shallow (retraces 23.6% – 38.2% of wave 3)
If wave 3 is extended and very vertical, it will likely overshoot the trend channel that can be drawn when placing the anchor points at the extremities of wave 1, 2 and 4. However the channel is still very valid for gauging the end of wave 5 (see image)
If wave 4 retraces more than 50% of wave 3, it is quite often not a wave 4.
Wave 5 is likely to become extended if wave 1 and 3 are equal in size.
If wave 5 is extended, then it often finishes at the 161.8% extension relative to the magnitude of wave 1 through to 3 (see image)
If wave 5 is extended, then the ensuing correction is often sharp and swift and ends near the extreme of sub-wave 2 of the extension. This does not apply when the market is ending a 5th wave simultaneously at more than one degree.
Comment:
Motive Wave: DIAGONAL
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.
Comment:
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.
Comment:
Rules:
All diagonals consist of 5 waves
Diagonals can be ‘leading’ or ‘ending’ diagonals, depending on whether they form at the start or end of a trend. Diagonals therefore can only form in the positions of wave 1 (leading) or 5 (ending) of an impulse, or the positions of wave A (leading) or C (ending) of a zigzag.
Within an ending diagonal, all 5 waves must be zigzags (simple-, double-, and triple-zigzags are all valid)
Within a leading diagonal, at least waves 2 and 4 must be zigzags (simple-, double-, and triple-zigzags are all valid). Waves 1, 3 and 5 can be impulses or zigzags. (If 1, 3, and 5 are impulses, be aware that it could easily be a 1-2, 1-2, 1-2 sequence instead of a diagonal)
Wave 2 must not retrace more than 100% of wave 1
Wave 4 must overlap with wave 1(please note that opinions differ over this rule. There are some Elliott Wave researchers who believe that ending and leading diagonals can be valid without wave 4 needing to move into territory of wave 1, although they still consider it unusual)
Wave 4 never moves beyond the end of wave 2
Leading and expanding diagonals must not have a truncated 5th wave.
Contracting diagonals always have a shorter wave 3 than wave 1 (in terms of percentage gain/loss)
Contracting diagonals always have a shorter wave 5 than wave 3 (in terms of percentage gain/loss)
Contracting diagonals always have a shorter wave 4 than wave 2 (in terms of percentage gain/loss)
Expanding diagonals always have a longer wave 3 than wave 1 (in terms of percentage gain/loss)
Expanding diagonals always have a longer wave 5 than wave 3 (in terms of percentage gain/loss)
Expanding diagonals always have a longer wave 4 than wave 2 (in terms of percentage gain/loss)
Guidelines:
Contracting diagonals form within two converging trend lines (contracting wedge)
Contracting diagonals can overshoot its trend line during wave 5 (called throw-over) and still be valid as long as wave 5 remains smaller than wave 3
Contracting ending diagonals can also undershoot its trend line during wave 5 (truncation).
Contracting ending diagonals should always show a corresponding decrease in momentum as they progress towards their culmination. Many small candles that take a lot of time to gain further ground is a good sign that an ending diagonal is indeed occurring. Conversely, strong big candles within a potential diagonal formation should be a warning sign that you are probably witnessing a 1-2, 1-2, 1-2 extension of the trend, and therefore not an ending diagonal.
Expanding diagonals form within two diverging trend lines (expanding wedge). They are more rare than contracting diagonals
Wave 2 and 4 of any diagonal very often retrace their wave 1 and 3 much deeper when compared to wave 2 and 4 of impulses
The internal zigzags of any diagonal can sometimes subdivide into more complex double or triple zigzags
Any diagonal can begin to be confirmed with higher certainty once wave 4 is close to being complete
Diagonals are more rare in general (although they do occur quite frequently within sub-waves of very small wave degrees that are visible on timescales of M15 and lower)
If wave 1 is a leading diagonal, wave 3 is usually extended.
A place to watch out for potential expanding leading diagonals is at the start of stock market declines (due to the opposing forces that are in play during this transitional period). Diagonals occur because of transitory forces of trend changes act against each other
Ending diagonals are followed by a strong reversal most of the time
Fibonacci Retracement and Extension Guidelines: Refer to image for key retracements and extension targets
All diagonals consist of 5 waves
Diagonals can be ‘leading’ or ‘ending’ diagonals, depending on whether they form at the start or end of a trend. Diagonals therefore can only form in the positions of wave 1 (leading) or 5 (ending) of an impulse, or the positions of wave A (leading) or C (ending) of a zigzag.
Within an ending diagonal, all 5 waves must be zigzags (simple-, double-, and triple-zigzags are all valid)
Within a leading diagonal, at least waves 2 and 4 must be zigzags (simple-, double-, and triple-zigzags are all valid). Waves 1, 3 and 5 can be impulses or zigzags. (If 1, 3, and 5 are impulses, be aware that it could easily be a 1-2, 1-2, 1-2 sequence instead of a diagonal)
Wave 2 must not retrace more than 100% of wave 1
Wave 4 must overlap with wave 1(please note that opinions differ over this rule. There are some Elliott Wave researchers who believe that ending and leading diagonals can be valid without wave 4 needing to move into territory of wave 1, although they still consider it unusual)
Wave 4 never moves beyond the end of wave 2
Leading and expanding diagonals must not have a truncated 5th wave.
Contracting diagonals always have a shorter wave 3 than wave 1 (in terms of percentage gain/loss)
Contracting diagonals always have a shorter wave 5 than wave 3 (in terms of percentage gain/loss)
Contracting diagonals always have a shorter wave 4 than wave 2 (in terms of percentage gain/loss)
Expanding diagonals always have a longer wave 3 than wave 1 (in terms of percentage gain/loss)
Expanding diagonals always have a longer wave 5 than wave 3 (in terms of percentage gain/loss)
Expanding diagonals always have a longer wave 4 than wave 2 (in terms of percentage gain/loss)
Guidelines:
Contracting diagonals form within two converging trend lines (contracting wedge)
Contracting diagonals can overshoot its trend line during wave 5 (called throw-over) and still be valid as long as wave 5 remains smaller than wave 3
Contracting ending diagonals can also undershoot its trend line during wave 5 (truncation).
Contracting ending diagonals should always show a corresponding decrease in momentum as they progress towards their culmination. Many small candles that take a lot of time to gain further ground is a good sign that an ending diagonal is indeed occurring. Conversely, strong big candles within a potential diagonal formation should be a warning sign that you are probably witnessing a 1-2, 1-2, 1-2 extension of the trend, and therefore not an ending diagonal.
Expanding diagonals form within two diverging trend lines (expanding wedge). They are more rare than contracting diagonals
Wave 2 and 4 of any diagonal very often retrace their wave 1 and 3 much deeper when compared to wave 2 and 4 of impulses
The internal zigzags of any diagonal can sometimes subdivide into more complex double or triple zigzags
Any diagonal can begin to be confirmed with higher certainty once wave 4 is close to being complete
Diagonals are more rare in general (although they do occur quite frequently within sub-waves of very small wave degrees that are visible on timescales of M15 and lower)
If wave 1 is a leading diagonal, wave 3 is usually extended.
A place to watch out for potential expanding leading diagonals is at the start of stock market declines (due to the opposing forces that are in play during this transitional period). Diagonals occur because of transitory forces of trend changes act against each other
Ending diagonals are followed by a strong reversal most of the time
Fibonacci Retracement and Extension Guidelines: Refer to image for key retracements and extension targets
Comment:
Corrective Wave: ZIGZAG
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding wave of the same direction (i.e. targets of C are relative to the size of wave A, targets of wave Y are relative to the size of wave W, targets of wave Z are relative to the size of wave Y.
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding wave of the same direction (i.e. targets of C are relative to the size of wave A, targets of wave Y are relative to the size of wave W, targets of wave Z are relative to the size of wave Y.
Comment:
Rules:
Zigzags consist of 3 waves (A, B and C)
Wave A must be an impulse or leading diagonal
Wave C must be an impulse or ending diagonal
Only one diagonal is allowed (A or C) per zigzag, i.e. it must have at least one impulse (A or C)
Wave B can be any corrective pattern (zigzag, flat, triangle, complex combination)
Wave B must not retrace Wave A by more than 100%
Guidelines:
Wave C should normally always go beyond A. Wave C can in principle be truncated (i.e. not go beyond wave A) but it is extremely rare.
Zigzags can become extended into double or triple zigzags, in which case they are labeled wxy (double zigzag) and wxyz (triple zigzag). W, Y, and Z will each subdivide into their own ABC zigzag, while the X wave/s can be any corrective pattern (they take on the same role as B waves in a simple zigzag). Extended zigzags usually form when a simple zigzag appears too small in terms of time and magnitude in order to be proportional to the swing, which it is correcting.
Zigzags can take many shapes and sizes. One of the features that can help distinguish an A-B-C zigzag from a potential 1-2-3 impulse is that wave A and B will be much more overlapping in general and A waves tend to finish quicker than wave 1 in terms of time and magnitude. Zigzags should often show a very gently sloping channel, whereas 1-2-3 are typically much more steep
Fibonacci Retracement and Extension Guidelines:
Waves A and C of a correction tend towards equality (same size 100%). The next most common ratios are C = 161.8% x A or C = 61.8% x A
Wave B usually retraces between 38% – 79% of wave A
If wave B is a triangle, there is a higher chance that wave C may only reach the 61.8% extension target.
If wave B is a running triangle, it will typically only retrace 10 – 40% of wave A
If wave B is any other sideways correction, it will typically 38% – 50% of wave A
if wave B is a zigzag, it will typically retrace 50% – 79% of wave A
Zigzags consist of 3 waves (A, B and C)
Wave A must be an impulse or leading diagonal
Wave C must be an impulse or ending diagonal
Only one diagonal is allowed (A or C) per zigzag, i.e. it must have at least one impulse (A or C)
Wave B can be any corrective pattern (zigzag, flat, triangle, complex combination)
Wave B must not retrace Wave A by more than 100%
Guidelines:
Wave C should normally always go beyond A. Wave C can in principle be truncated (i.e. not go beyond wave A) but it is extremely rare.
Zigzags can become extended into double or triple zigzags, in which case they are labeled wxy (double zigzag) and wxyz (triple zigzag). W, Y, and Z will each subdivide into their own ABC zigzag, while the X wave/s can be any corrective pattern (they take on the same role as B waves in a simple zigzag). Extended zigzags usually form when a simple zigzag appears too small in terms of time and magnitude in order to be proportional to the swing, which it is correcting.
Zigzags can take many shapes and sizes. One of the features that can help distinguish an A-B-C zigzag from a potential 1-2-3 impulse is that wave A and B will be much more overlapping in general and A waves tend to finish quicker than wave 1 in terms of time and magnitude. Zigzags should often show a very gently sloping channel, whereas 1-2-3 are typically much more steep
Fibonacci Retracement and Extension Guidelines:
Waves A and C of a correction tend towards equality (same size 100%). The next most common ratios are C = 161.8% x A or C = 61.8% x A
Wave B usually retraces between 38% – 79% of wave A
If wave B is a triangle, there is a higher chance that wave C may only reach the 61.8% extension target.
If wave B is a running triangle, it will typically only retrace 10 – 40% of wave A
If wave B is any other sideways correction, it will typically 38% – 50% of wave A
if wave B is a zigzag, it will typically retrace 50% – 79% of wave A
Comment:
To be continued. Wait!
Note: The percentages in the above for Fibonacci extension targets are drawn from the start of the wave, but the ratios are based on the size of the preceding motive wave (i.e. targets of 3 are relative to the size of wave 1, targets of wave 5 are relative to the size of wave 3.