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Elliott Wave Basics - Corrective Patterns |
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Corrections are very hard to master. Most Elliott Traders make money during an impulse pattern and then loose it back during the corrective phase.
An impulse pattern consists of five waves. The corrective pattern consists of 3 waves, with the exception of a triangle. An Impulse pattern is always followed by a Corrective pattern. Corrective patterns can be grouped into two different categories:
Simple Corrections
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There is only one pattern in a simple correction. This pattern is called a Zig-Zag correction. A Zig-Zag correction is a three wave pattern where the Wave B does not retrace more than 75% of wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag correction always has a five wave pattern. In the other two types of corrections (Flat and Irregular), the Wave A has a three wave pattern. Thus, if you can identify a five wave pattern inside Wave A of any correction, you can then expect the correction to turn out as a Zig-Zag formation. |
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Fibonacci Ratios Inside A Zig-Zag Correction:
Wave B=
usually 50% of Wave A.
should not exceed 75% of Wave A.
Wave C=
either 1 x Wave A
or 1.62 x Wave A
or 2.62 x Wave A
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A simple correction is commonly called a Zig-Zag correction.
Complex
Corrections Flat, Irregular, Triangle
The complex correction group consists of 3 patterns:
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Flat Correction :
In a Flat correction, the length of each wave is identical. After a five wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B to the previous high. Finally, the market drops one last time
in Wave C to the previous Wave A low. |
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| Irregular Corrections:
In this type of correction, Wave B makes a new high. The final Wave C may drop to the beginning of Wave A, or below it. |
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Fibonacci Ratios In An Irregular
Wave
Wave B = either 1.15 x
Wave A or 1.25 x Wave A
Wave C = either 1.62 x
Wave A or 2.62 x Wave A
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Triangle Corrections :
In addition to the three wave correction patterns, there is another pattern which appears time and time again. It is called the Triangle pattern. The Elliott Wave Triangle approach is quite different from other triangle studies. The five sub waves of a triangle are designated A, B, C, D, and E in sequence. |
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Triangles are by far most common as fourth waves. One can sometimes see a triangle as the Wave B of a three wave correction. Triangles are very tricky and confusing. One must study the pattern very carefully prior to taking action. Prices tend to shoot out of the triangle formation in a swift thrust. |
When triangles occur in the fourth wave, the market thrusts out of the triangle in the same direction as Wave 3. When triangles occur in Wave B’s, the market thrusts out of the triangle in the same directions as the Wave A. |
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Alteration Rule
If Wave Two Is A Simple Correction,
Expect Wave Four To Be A Complex Correction.
If Wave Two Is A Complex Correction,
Expect Wave Four To Be A Simple Correction.
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