# Trading waves

**TA-04 · Technical Analysis · Core**

**Lesson question:** How do you compare the quality of successive moves?

Original fictional examples; educational writing, not live market data, orders or production approval.

## By the end

- Explain the mechanism in the lesson question.
- Reproduce the worked comparison and recognize its failure case.

**Prerequisites:** TA-01

Markets often alternate directional pushes and corrections. This lesson uses descriptive waves, not a prophetic wave count. Measure progress, time and overlap rather than forcing every bar into a predetermined future sequence.

## Understand the mechanism

An impulse tends to make net progress with less overlap; a correction retraces or rotates. A trend may remain upward while each push travels less distance and each correction consumes more. Compare similar timeframes and consider the volatility regime.

## Walk through the process

Record start, end, duration and retracement for each wave. Fix endpoints by a declared method before evaluating performance. Ask what renewed strength would look like and what further deterioration would invalidate the trend.

## Pause before deciding

Describe what the example actually establishes and what remains unknown. A technical observation supplies context, not an automatic options entry. Contract cost, horizon, liquidity and the consequence of failure still need to match the thesis. Record the contrary branch so a named pattern cannot become an excuse to ignore new evidence.

## A worked example

The first up-wave is 100→108, then a correction to 105 returns 37.5%. The next rises 105→111 and corrects to 107, giving back 66.7%. The second push gains less and loses more of its progress. That is deteriorating quality even though 111 is a new high.

## Graph: Trading waves—worked comparison

**Horizontal:** Wave observation  
**Vertical:** Spot (USD)

Fictional data from the written example. The chart organizes the comparison; its shape is not a forecast.

Complete numerical data are embedded in `scripts/technical-analysis/TA-04.js` and displayed as an accessible table in the HTML lesson.

## What would invalidate the reading?

Selecting convenient endpoints after the fact can manufacture deterioration or strength. A larger dollar wave in a higher-volatility regime is not automatically better participation.

## Check your understanding

### How much of 105→111 is retraced by 111→107?

**Answer:** About 66.7%.

**Why:** Four of the preceding six points.

### What is the critical failure to avoid?

**Answer:** Selecting convenient endpoints after the fact can manufacture deterioration or strength. A larger dollar wave in a higher-volatility regime is not automatically better participation.

**Why:** Explain this risk before treating the example as a decision rule. A correct calculation does not guarantee a favorable market outcome. **Critical risk check.**

## Takeaway

Return to the question: How do you compare the quality of successive moves? State the observed facts, the assumptions and the failure condition separately.

## References and provenance

The cited references support definitions and conventions. The teaching prose, tickets and numerical scenarios are original; they are not attributed as historical market observations.

- [Fidelity Technical Analysis Guide](https://www.fidelity.com/learning-center/trading-investing/technical-analysis)

- [Fidelity Chart Patterns Reference](https://www.fidelity.com/quick-content/etf/help/research/learn_er_quotes.shtml)