# Truncation

Truncation is an indicator on [Vela](https://vela.luxalgo.com/chart), our next-generation charting platform, written in Pine Script®.

Detects truncated fifth waves (a five-wave impulse whose final wave stops short of the wave 3 extreme), validated against the Elliott hard rules and, by default, a five-wave subdivision inside wave 5. Shades the shortfall zone, draws confirmation at the wave 4 extreme and invalidation at wave 3, and reports divergence and volume evidence, with six alerts.

- Indicator in the LuxAlgo Library, by LuxAlgo, published Jul 29, 2026.
- Access: free.
- Concepts: [Truncation](https://www.luxalgo.com/library/concept/truncation/) (primary)
- Open on Vela: https://vela.luxalgo.com/chart?pineScriptCodeId=uk6p89lp9q3s85vwqqo4i0sd
- Page: https://www.luxalgo.com/library/indicator/truncation/

**Truncation** looks for the failed fifth: the impulse that completes its form but not its extent. Five legs are counted off the swing structure, the hard rules are enforced through wave 4 (wave 2 holds the origin, wave 4 stays out of wave 1 territory, wave 3 never the shortest), and the build flags a finished fifth halting shy of the wave 3 extreme, the signature of [truncation](https://www.luxalgo.com/library/concept/truncation/). The uncovered ground shades as the shortfall zone; dashed levels at the wave 4 and wave 3 extremes carry confirmation and refutation.

## How to Trade the Truncation?

- **Detected**: the Truncated 5th label appears once the final swing confirms; its tooltip itemizes shortfall depth, interior sub-swings, momentum divergence and volume.
- **Confirmed**: a close through the wave 4 extreme solidifies the pattern. The reversal starts from a lower high or a higher low that extreme-insistent counts will miss.
- **Refuted**: any trade beyond the wave 3 extreme deletes the candidate; wave 5 simply extended.

## Truncation Settings

- **Swing Length** (default 8): pivot length for waves 1 through 5, confirming this many bars after each extreme.
- **Sub-Wave Length** (default 3): smaller pivot counting sub-swings inside wave 5.
- **Require Five-Wave Subdivision In Wave 5** (default on): demands at least four progressing interior sub-swings.
- **Extended Wave 3 Filter** (default off) with its ratio field (default 1.618): only accept truncations following an extended third wave.
- **Momentum Length** (default 14): RSI length comparing the wave 5 and 3 extremes.
- **Require Momentum Divergence** (default off) and **Require Fading Volume** (default off): promote the corroborating evidence into hard filters; both still report in the tooltip.
- Style: **Impulse Lines**, **Wave Labels**, **Shortfall Zone**, **Confirmation & Invalidation Levels**, **Show Swings** (all on).

## Frequently Asked Questions

### How does truncation relate to a wave extension?

They are opposite fifth-wave outcomes. The [Wave Extension](https://www.luxalgo.com/library/indicator/wave-extension/) build tracks the wave stretching far beyond normal proportion; truncation is the fifth that cannot even reach the prior extreme, classically after an outsized third wave.

### Why insist on the subdivision inside wave 5?

Because a shortfall alone proves nothing. If the move after wave 4 never built its own five-wave structure, the better reading is that the correction had already begun. The interior check is evidence a genuine fifth completed and failed.

### Can a pattern appear already confirmed?

Yes. Swing confirmation lags by Swing Length bars, so the build replays the bars since the wave 5 extreme: a close already through wave 4 arrives solidified, a candidate already beyond wave 3 never appears.

## Related indicators

- [Elliott Wave](https://www.luxalgo.com/library/indicator/elliott-wave/) (Impulse): markdown at https://www.luxalgo.com/library/indicator/elliott-wave.md
- [Elliott Hard Rules](https://www.luxalgo.com/library/indicator/elliott-hard-rules/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/elliott-hard-rules.md
- [Triangle](https://www.luxalgo.com/library/indicator/triangle/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/triangle.md
- [Wave Degree Hierarchy](https://www.luxalgo.com/library/indicator/wave-degree-hierarchy/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/wave-degree-hierarchy.md
- [Diagonals](https://www.luxalgo.com/library/indicator/diagonals/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/diagonals.md
- [Motive Wave](https://www.luxalgo.com/library/indicator/motive-wave/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/motive-wave.md
- [Wave Extension](https://www.luxalgo.com/library/indicator/wave-extension/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/wave-extension.md
- [NeoWave Logic](https://www.luxalgo.com/library/indicator/neowave-logic/) (Elliott & Harmonics): markdown at https://www.luxalgo.com/library/indicator/neowave-logic.md

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Source: https://www.luxalgo.com/library/indicator/truncation/ (LuxAlgo Library). Free to use with attribution: https://www.luxalgo.com/library/license/