Home Technical Analysis Elliott wave theory Understanding the Corrective Waves is Key to Succeed

Understanding the Corrective Waves is Key to Succeed

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In this post, we’ll talk about the basic concepts of corrective waves. The importance of corrective structures comes from the fact that price consolidates near to 70% of the time. There are different factors to consider to analyse corrective movements. The main elements are time, speed, the extension of the previous move, and volume.

The basics

The first concept to grasp is that all corrections have three waves. We can classify the corrections in four types: zigzag, flat, irregular, and triangle. The following chart shows the four classes of corrective structures.

Triangles will be treated in a specific article.

The simple and complex correction concept

A “simple” corrective structure is, as the name says, the basic structure which shows three waves. It is, for example, a zigzag, flat or irregular pattern.

A “complex” corrective structure is a combination of simple structures. Complex structures are, for example, a triangle, two zigzag patterns, a zigzag and a flat structure, and so on. The reader doesn’t have to feel uncomfortable trying to memorise each corrective structure. To ease this comprehension, Elliott left us a key concept: the alternation.

The alternation

The second essential concept is alternation, which is nature’s law. The same way as the day alternating with the night; a bull market alternates with a bear market. Impulsive waves alternate with corrective waves. So, corrective waves alternate one with the other.

We know that an impulsive movement has a five-wave sequence, where waves 2 and 4 are correctives. The alternation says that if wave 2 is simple, wave 4 will be complex; conversely, if wave 2 is complex, its wave 4 will be simple.

Volume

Elliott in this treatise didn’t expand this point. He considered the volume useful for the wave analysis. In corrective waves, the volume tends to decrease from the beginning to the end. It’s independent of the corrective structure shape.

The conclusion

Understanding Corrective Waves is critical due to the considerable time that market consolidates.

The reader shouldn’t feel uncomfortable trying to guess the corrective structure’s name.

The first step is to identify the initial corrective wave. The second part comes from the application of the alternation rule.

Remember that if wave 2 is a simple corrective structure, the probability that wave 4 will be complex is high.

5 COMMENTS

  1. Hi Eduardo, thanx for this nice chart. Is there not a fourth type of structure: the triangle? I only see three types of structures. Thank you!

    • Hi John! Thank you for your support. That’s right, there exist a fourth corrective structure: the triangle. This structure will be treated in a specific article. I hope you’re enjoying the reading of our contents.

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