Skip to main content

Corrective Patterns of Elliott waves


As we know from the previous article, Elliott has recognized motive and corrective waves. The motive waves have been already explained, so let's take a look at corrective ones.  Corrective waves are moves against the trend of greater degree. The resistance from the motive wave prevents a correction from developing full motive structure (another motive wave). As the result of these two balanced forces, the patterns, which were defined by Elliott are much more complicated than motive ones. Corrective patterns fall into 4 categories:



Zigzag 

 (5-3-5*,  3 types - single, double and triple)

Flat

 (3-3-5*,  3 types -  regular, expanding and running)

Triangle 

( 3-3-3-3-3* - A,B,C,D,E - four types: 3 of contracting variety(ascending, descending, symmetrical) and one expanding type (reverse symmetrical)

Combination 

 (double three and triple three)

* represents wave count

ZigZags 

It's the simplest correcting structure, which is built by 3 waves of bigger degree(A,B,C) and 5-3-5 waves (for example A has 5 less significant waves - see picture) of  smaller degree. Zigzags can occur multiple times - 2 or 3 times in a row, mainly if the first zigzag doesn't reach the meant target. This behavior is labeled by an intervening "three", labeled as X and Ys, eventually with Zs (if it is triple zigzag) and are called as double zigzag, eventually triple zigzags.

Double zigzag(triple zigzag looks kind of same)

Flats 

Flat is also one of the simpler structures, is built by 3 waves (A,B,C), but differs from zigzag by another wave count, which is 3-3-5. It also retraces less of preceding impulsive wave than already mentioned pattern  does, because it lacks sufficient downward force to unfold into 5 wave pattern. This behavior is then inherited by wave B and it terminates near the start of wave A. The wave C continues in corrective pattern, but terminates  just slightly below the end of wave A, as opposed to zigzag, whose wave C is much stronger. The stronger the impulsive wave was, the higher chance is, that Flat will be created. Elliott has identified 3 types of flats:

Regular Flat - the wave B terminates to the level of the beginning of wave A and wave C terminates slightly below the end of wave A
Expanded Flat - the wave B terminates beyond the starting level of wave A and wave C terminates substantially below the end of wave A (this flat is the most common one)
Running Flat - the wave B terminates well beyond the beginning of wave A as in expanded flat, but wave C fails to travel its full distance and never reaches the end of wave A.



Triangles 

Triangles are 5 wave structures, which subdivide as 3-3-3-3-3 and are labeled as A,B,C,D,E in Elliott theory. They usually represent balance force between buyers and sellers,  causing sideways movement, which is followed by decreased volume and volatility. They fall into 4 main categories:


Combinations

The Elliot named and defined 2 combinations, named as double threes and triple threes. It is mostly combination of previous corrective patterns (zigzag, flat and triangle). While a single three is any zigzag or flat pattern, a triangle is allowable final component of combinations and this pattern in context is called "three". A double or triple three is then combination of similar types of corrections, including various forms of zigzags, flats or triangles. As with double or triple zigzags, each simple corrective pattern is labeled as W, Y, Z. The reactionary wave, labeled X, can take any form of mentioned patterns, but is mostly zigzag. The combinations are usually horizontal in character and have sideways movement. The rule is that the pattern can't have more than one triangle or zigzag,  triangles are also in 100% of cases the final component of combinations.


Comments

Post a Comment

Popular posts from this blog

The Basics of Elliott wave principle

Any market is driven by the psychology of the people, by knowing this principle you can forecast large and small shifts in the price action.  In final result it will minimize emotions and your doubtfulness before getting into trade. Furthermore this analysis will maximize your profits and success of prognosis by placing the stop losses/take profits, trade setups the right way. These patterns were noticed by Ralph Nelson Elliot who watched and identified these by watching the market for about 10 years. He called this discovery "the Wave Principle" and these days it belongs to one of the fundamental technical analysis in trading. The book was published in 1978 by Mr. Prechter, who has found the Elliott's work in the New Your Public library and published a book "Elliott wave principle, which has spread like a fire throughout the world. The new focus for Wall Street and investors worldwide was designated. Nowadays tens of thousands of people use Elliott wave princi...
Post a Comment
Read more

What is Forex trading and Forex market?

Forex Trading - also known as the foreign exchange market (FX) is a "place", where the currencies are exchanged. These currencies are traded, because people need to exchange currencies to conduct foreign trades or business. For example if you are living in the U.S. and you want to buy a chocolate from the Switzerland, you have to buy this product in euros, so it means that exchange from US dollar(USD)  to euros(EUR) is needed. The Forex market is traded between 10pm on Sunday and 10pm on Friday. Within this time frame it's active 24 hours every day, 5 days a week. The necessity or need of people to exchange currencies, because of globalisation and other aspects, is the primary reason, why the Forex market is one of the biggest markets in the world. The BIS(the Bank for International Settlements) concluded, that Forex market has a value of astonishing 4.9 trillion US dollars, so there is huge potential in making money. If you would have compared FX(Forex market)...
Post a Comment
Read more

How to calculate pips and position size

A pip is the smallest movement in the price action. This movement is calculated through the spread difference - bid and ask price. For the most pairs one pip represents 0.0001,  for the JPY(yen) pairs it is 0.01, because of 3(2) digital value in comparison with other major currencies, which have 1 digital value. Example  For the EUR/USD the movement from 1.4000 to 1.4001 represents one pip For the USD/JPY the movement from 112.00 to 112.01 represents one pip The calculation of the pips comes in handy if we want to make a transaction, so we know how many lots we want to buy or sell. A Lot In general, a lot represents the standardized quantity of a financial instrument. 1 (standard) lot is 100.000 units of base currency. I would suggest using calculator, because it can be quite tricky to calculate. This calculator is my favorite one. How to calculate position size - very important for Forex trading! In trading it's really important to have risk...
Post a Comment
Read more