14.3 Corrective Waves

Elliott Waves

Corrective Waves - Text Version

In this lesson we will look at the Correction sequence that happens after an Impulse sequence. Corrections are more complex than their Impulse counterparts as there are many different types of corrective patterns, but they tend to fall into three categories: Zig Zags, Flats and Triangles.

Let’s start by looking at the most common type of correction: a “Simple Zig-Zag” which is a 3-Wave correction. Elliott Wave practitioners use letters to label the Waves in a Corrective sequence to differentiate them from the Waves in an Impulse sequence. In a Simple Zig-Zag pattern, the letters  “a”, “b” and “c” are used by Elliott traders.

How does a simple Zig-Zag subdivide on a smaller scale? Typically, we see a formation on the smaller degree of 5-Waves down, followed by 3-Waves up and lastly 5-Waves down. This is abbreviated to “Five Three Five”.

What other types of Zig Zags are there? The next type would be two simple Zig-Zags joined together by another Wave in between. This is called a Double Zig-Zag and the Wave that joins the two Zig-Zags is labelled “X” by Elliott Wave Practitioners. The X-Wave normally has 3 subdivisions at a lesser degree, so the Double Zig-Zag can be summarized as “5-3-5-3-5-3-5”

What’s the next type of Zig Zag? You’ve guessed it: a triple Zig-Zag! In this case, the Wave that joins the second and third simple Zig-Zag is called “Y”.

The second category of Corrective Sequence is called Flats. They are given that name because the Price Pattern looks flatter than a Zig-Zag. Like a Flat Zig-Zag, a Flat is a 3-Wave move, but unlike a Zig-Zag, the price doesn’t appear to go anywhere but sideways. The “B” wave of the flat ends near the start of the “A” wave, and because the “B” retraces so much, the “C” does not extend much past the start of Wave A. The result is that the overall retrace of the Correction is quite shallow compared to the previous Impulse sequence. One of the other key difference between a Flat and a Zig-Zag, is that Wave “A” in a Flat is made up of only 3-subwaves; so, a Flat is a 3-3-5 structure.

The third category of Corrective patterns is the Triangles. These are overlapping 5-wave moves, and Elliott Wave Practitioners label the waves “A”, B”, “C” “D” and “E”. Triangles can be ascending, descending, contracting, or expanding.

In these first three lessons, we have covered the foundation of Elliott Wave Theory and looked at some real chart examples. Next, we’re going to look at one of the most popular tools used to help find profitable trades on Elliott Waves. That tool is Fibonacci ratios.