Getting tired of the Elliott waves?
I hope not as we have left some of our unfinished business in 2018 and it seems like a perfect time to resume our lessons on trading waves.
Elliott set a definition of something called the corrective waves. It is a wave that comes after a 5-wave trend and reverses is in the three steps. Just like you can see in the picture below.
These 5-3 pattern can be met not only in the bull market, which you can clearly see in the picture, but also in a bear market. Just reverse the picture and voila – there is you bear market wave.
Corrective waves are basically the countertrends. Easily put – it is a reverse of the ongoing trend in the charts, pointed out by Elliott and selected into categories. The first one is a zig-zag corrective wave. These are the steep and rapid formations which go against the existing trends.
And, just like with anything else there are several types of these waves.
The first one is zig-zag.
In the picture A and C are the trend-forming lines. And B is the wave. Notice, that B will always be shorter than A and C. such formations can be met in a row – five or six crammed together.
The second one is flat.
Generally speaking, flat formation are simple corrective waves, the length of which is going to be equal to those of the trend. In the picture are all the types of flat waves that you might see on your chart from time to time.
The third one is triangles.
The picture is pretty self-explanatory. The corrective waves are bound together by converging and diverging trend.
The waves here usually go in turns with the varying length of each of the wave.