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If you are talking about the very first (1) - (2) in green, you are correct. These should have been placed lower. By moving these down, the rest of the count remains valid as is.

Right, good question. So my understanding is that the rule you stated is correct. However if you take a closer look at the chart you'll notice that the wicks are primarily causing the issue of 1 & 4 over lapping. Also this chart is from an exchange where trader can enter at leveraged positions so this chart is from a margin trading trading account. My understanding is those markets behave a little different.

Is that looking better, I tightened it up.

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