"...since the new year, I am up 60% on my account."
Doug, Private Trader
Rule number 3 states that Wave (4) cannot retrace into the area of Wave (1). However, in practice, particularly in the commodity markets, a small retracement into the area of Wave (1) often happens.
Here Wave (4) has retraced back just below the high of Wave (1), which normally would invalidate this as a potential 5-wave count. However, in practice you can allow Wave (4) to dip into the area of wave (1) slightly.
Actually, if the market in question immediately reverses and then moves out of the area of Wave (1), then this should be allowed as a valid 5 wave count. As you will see later, although this minor breach of the Wave (1) extreme can be allowed it should not normally happen in a perfect 5-wave count.
As such, when this happens you should treat the wave count as valid but not perfect.