Watch the video first
A short video walks through the whole cycle: the trim in wave 3, the re-add in wave 4 and the hard trim in wave 5. It shows the chart movements only, so use it as an overview and come back to the sections below for the rules and the detail.
How to read the charts
Every chart in this guide has the same layout. The numbered waves are drawn as circled numbers, the notation for Primary degree. The upper panel shows price with the wave count. Where it matters, a lower panel shows how much of your position you hold at that moment. Each animation can be played, stepped through, or shown as one overview picture.
Purpose of trimming
Trimming means selling part of a position and keeping the rest. It is easy to mix up with selling out, so it helps to be clear about what it is for, and what it is not.
- A way to reduce exposure at statistically extended levels
- A way to lock in profits while maintaining exposure
- A way to create capital for entries with a better risk versus reward
- It is not a bearish signal
- It is not an attempt to sell the exact top, which is near impossible
Trimming principles
Three principles sit behind every trim in this framework.
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Trim on structure and Fibonacci levels, not on emotion
Fear and excitement are poor timing tools. A trim should have a wave and a price level behind it.
For example, the 1.618 extension of wave 1 inside a wave 3.
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Have a re-add plan before you trim
Know where the trimmed capital goes back in before you sell. A trim without a plan is only a sale.
For example, trim in wave 3 so that you can add in wave 4.
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Let conviction set how aggressive you are
The stronger your case for a stock, the less you trim at the first target. The weaker the case, the more you take off the table.
The whole cycle in one picture
Before looking at each wave on its own, here is the complete sequence on one hypothetical stock. Watch the thick blue line in the lower panel. It steps down when you trim, steps back up when you re-add, and drops again when wave 5 is rejected.
The sizes in this picture are examples. A 25% trim is the middle of the 20–30% range, and the wave 5 trim of about 65% only illustrates “a large percentage”. They are not fixed rules, and your own sizing should follow your conviction.
Wave 3, trim into strength
Why trim in wave 3
- Wave 3 is powerful and often the longest wave
- Price often moves far above its moving averages
- Late buyers begin chasing, which is common late in wave 3
- The probability of a consolidation or pullback goes up
Finding the trim zone
The primary trim zone is near the 1.618 Fibonacci extension of wave 1. You measure wave 1, project 1.618 times its length upward from the end of wave 2, and mark the result before price gets there.
Trim zone and size
Conviction guidelines
- Strong fundamentals
- Sector leadership
- Clean EWT structure
- Supportive macro environment
- Weaker fundamentals
- Extended momentum without base support
Key points
- Wave 3 is not where trends end. Wave 4 and wave 5 still lie ahead.
- Over-trimming in wave 3 often leads to chasing re-entries.
The high-conviction exception
For genuinely high-conviction names, the standard wave 3 trim does not apply. I hold a full position through wave 3 on a name like $AMD, for example.
- Hold the full position through wave 3
- No trimming at the 1.618 Fib
- Wait for wave 4 to add, on confirmed support, close to the 0.382 Fib
- Reserve the majority of trimming for a wave 5 rejection
The picture below runs the same hypothetical stock through three paths. Switch between them and watch how the position line changes while the price stays the same.
Wave 4, re-adding after the reset
Purpose of wave 4
- Momentum cools
- Structure resets without breaking the trend, and without entering wave 2 territory
- Wave 4 typically unfolds as three waves down, (A), (B) and (C)
Re-add zone
You measure the pullback as a share of wave 3. The ideal re-add zone is the 0.382 retracement. In very strong trends, wave 4 can stop at the shallower 0.236 level.
Re-add rules
- Redeploy trimmed capital first
- Do not add more than what was trimmed, unless conviction is high
Wave 5, aggressive trimming and capital protection
Why wave 5 is high risk
What it looks like on a chart
Wave 5 can still make a higher price high. What gives it away is what happens underneath and around it.
Wave 5 trimming strategy
- Trim a large percentage of the position
- Do not wait for a perfect target
- Do not be greedy
Common trimming mistakes
Wave 3 is often the longest and strongest wave. Selling before price reaches the extension zone gives up the best part of the trend.
InsteadWait for the zone near the 1.618 extension, then trim.
A big trim leaves little exposure for the rest of the move. Over-trimming in wave 3 often leads to chasing a re-entry at higher prices.
InsteadStay at 20–30% for standard conviction. Go further only for low conviction or a parabolic move.
Capital without a plan has no job. You end up deciding under pressure, which is how emotion gets back into the process.
InsteadDecide where the capital goes back in before you sell, for example near the 0.382 level of wave 4.
Wave 4 is the reset the trim was meant for. If you skip it, the capital sits idle while the trend still has wave 5 ahead.
InsteadRedeploy the trimmed capital first when price reaches the zone.
Wave 5 is where risk is highest. Waiting for a perfect exit or one more confirmation lets the profit shrink.
InsteadTrim a large percentage on the rejection and do not wait for a perfect target.
Checklist before you trim or re-add
Tick the boxes as you work through a position. Nothing is saved, so the list starts fresh each time you open the page.
Comprehension check
Three questions on trimming and re-entry. An explanation appears as soon as you choose an answer.