Elliott Wave Basics - Corrective Patterns

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

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. The Simple Zig-Zag Pattern Example

Figure of Ratios and correction  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

A simple correction is commonly called a Zig-Zag correction.

Figure of an ABC correction

Complex Corrections Flat, Irregular, Triangle

The complex correction group consists of 3 patterns:

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.

 Figure of Flat Correction
Figure of complete Flat Correction Figure of Flat Correction using bar chart
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. 

 Figure of general irregular pattern
Figure of Downward Irregular Correction  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 
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.
 

 Figure of Triangle Correction
Figure of Wave 4 Triangle 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.  Figure of triangle Correction in wave B

 
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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