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Truncation

By LuxAlgoJul 29, 2026

Truncation is an indicator on Vela, our next-generation charting platform, written in Pine Script®.

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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. 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

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Original indicatorBuilt in-house by LuxAlgo

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