Forex School Intermediate Level: ABC Correction

The 5-wave trends are then corrected and reversed by 3-wave countertrends. Letters are used instead of numbers to track the correction.

Corrective waves are three wave patterns. Corrective waves always unfold in the opposite direction to the larger trend – the next higher degree impulse or corrective wave. There are two different groups of corrective waves: simple corrective waves (zigzags, flats and irregulars) and complex corrective waves (triangles, double and triple threes). Corrective waves have much more variations than the impulse waves which makes it less easy to identify them while they are still being formed.

Shown is the three wave corrective phase (as opposed to the five wave motive phase) of the Elliott wave principle. Price moves in a rise-retrace pattern that is similar to an incoming tide. The corrective phase retraces a portion of the prior up move that was powered by the motive phase.

Corrections are very hard to master. According to Elliott, there are 21 corrective ABC patterns ranging from simple to complex. Most Elliott traders make money during an impulse pattern and then lose it back during the corrective phase.

Corrective patterns consist of 3 waves. An impulse pattern is always followed by a corrective pattern. Corrective patterns can be grouped into two different categories:

Simple Correction (Zig-Zag)

Complex Corrections (Flat, Irregular, Triangle)

ZIGZAGS (5-3-5)

Zigzag in a bull market is a simple three-wave declining pattern labeled A-B-C and subdividing 5-3-5. Wave B is typically shortest in length compared to Waves A and C. The top of wave B is noticeably lower than the start of wave A.

These zig-zag patterns can happen twice , or at most, three times in succession, particularly when the first zigzag falls short of a normal target. In these cases, each zigzag is separated by an intervening “three” (labeled X), producing what is called a double zigzag or triple zigzag. The zigzags are labeled W and Y (and Z, if a triple).

FLATS (3-3-5)

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.

Flat corrections usually retrace less of preceding impulse waves than do zigzags. They participate in periods involving a strong larger trend and thus virtually always precede or follow extensions. The more powerful the underlying trend, the briefer the flat tends to be. Within impulses, fourth waves frequently sport flats, while second waves rarely do.

In a rare variation on the 3-3-5 pattern(see also Elliot guideline), which we call a running flat, wave B terminates well beyond the beginning of wave A as in an expanded flat, but wave C fails to travel its full distance, falling short of the level at which wave A ended. There are hardly any examples of this type of correction in the price record.

Irregular Correction

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.

Triangle Correction

Triangles are complex corrective waves which are formed by five progressively smaller three-wave patterns (a 3-3-3-3-3 sequence).. Unlike other triangle studies, the Elliott Wave Triangle approach designates five sub-waves of a triangle as A, B, C, D and E in sequence.

In the Elliott wave principle triangles most often act as the fourth sub waves of the impulse waves, preceding the final move in the direction of the larger trend. Therefore, if you see a triangle in the fourth wave of an impulse wave you can apply the standard price objective calculation method used for triangles to calculate the possible end of wave five (completion of the whole impulse wave) – in addition to the projection methods described below. If a triangle occurs in the wave B of an ABC correction you can project the end of wave C by using the same technique. One can sometimes see a triangle as the Wave B of a three-wave correction. Triangles are very tricky and confusing. Prices tend to shoot out of the triangle formation in a swift thrust.