17. Impulse wave pattern

The buying frenzy weakened and wave 3 stalled. Profit taking began to take hold at this point. Traders who were long at the lows decided to cash in their profits. This triggers a pullback in price, forming Wave 4.

While profit taking is taking place, most traders remain convinced that the market is headed upward. They either entered this wave late, or were hesitant. They see this profit-taking as a good opportunity to buy and close their positions.

At the end of wave 4, more buy orders begin to intervene, and the price begins to fluctuate upward again, thus forming wave 5. Wave 5 movements lack the enthusiasm and power that Wave 3 movements have. After the price reaches a new high above wave 3, the momentum within wave 5 is very small compared to the operation process of wave 3.