The traders who were stopped out (after being upset for a while) decide the trend is up, and they decide to buy into the rally. All this sudden interest fuels the Wave 3 rally.
This is the time when the majority of the traders have decided that the trend is up.
Finally, all the buying frenzy dies down; Wave 3 comes to a halt.
Profit taking now begins to set in. Traders who were long from the lows decide to take profits. They have a good trade and start to protect profits.This causes a pullback in the prices that is called Wave 4.
Wave 2 was a vicious sell-off; Wave 4 is an orderly profit-taking decline. While profit-taking is in progress, the majority of traders are still convinced the trend is up. They were either late in getting in on this rally, or they have been on the sideline.