Elliott Waves - Corrective Waves
00:21 - UTILITY
Elliott Waves consist of Impulse waves and Corrective waves.
Impulse waves make the larger trend, while Corrective waves are the smaller pullbacks within the larger trend.
An Impulse has a 5 Wave structure.
A Corrective wave has a 3 Wave structure.
The Corrective wave structures are: ZigZags (5-3-5), Flats (3-3-5), and Triangles (3-3-3-3-3).
Corrective waves occur in Waves 2 and 4 of the move.
They move in the opposite direction of the prevailing trend and last impulse.
01:27 - IMPLEMENTATION
After the Impulse wave has finished, expect a Corrective wave to start.
In Corrective Wave 2 we generally look for a ZigZag (5-3-5) correction to the CC zone.
In Corrective Wave 4, we generally look for a longer, sideways Correction such as a Flat (3-3-5) or a Triangle (3-3-3-3-3).
The ZigZag correction is fairly standard with little variations.
In ZigZags, Wave B must be less than 66% of Wave A.
In ZigZags, Wave C must finish beyond the start of Wave A.
The Flat has four main variations: Flat, Failure, Power and Expanded.
In Flats, Wave B must retrace at least 66% of Wave A.
Standard Flat. Wave A, B and C are all the same length.
Failure Flat. Wave B is shorter than A, Wave C is shorter than B.
Expanded Flat. Wave B is longer than A and Wave C ends above A.
Power Flat. Wave B is shorter than A and Wave C ends above A.
There are 3 less common, but possible Flats.
Powerful B, Wave C retests Wave A’s high/low.
Powerful B, no retest in the C and strength continues.
Standard A and B, C has an extreme move.
*Tip for Flats: once you start a Corrective pattern, draw horizontal trend lines from the beginning and end of Wave A. You can measure the strength of Waves B and C by how far they reach towards or past these trend lines.
Triangles, for our style of trading EWs, are only traded as sideways triangles.
Triangles can be: ascending, descending or symmetrical.
Standard ABCDE symmetrical triangles are the most common.
There are some less common types of triangles such as expanding.
03:04 - EXAMPLE 1
The 3 types of Corrective waves are shown: Zig Zags, Flats and Triangles.
Here we should keep in mind the sub-waves of each pattern.
Remember: a Corrective Flat or Zig Zag 3 Wave structure still has an ending Impulsive 5 Wave structure on a smaller time frame.
05:21 - EXAMPLE 2
Wave B in a ZigZag CANNOT finish past the CC (66%) from the start of Wave A to the bottom of Wave A.
If Wave B does finish past the CC, then you are not looking at a ZigZag.
12:28 - EXAMPLE 3
We are shown a Flat with Powerful B and weak C, which creates a Lower high in the Flat Correction.
This is very common in bear markets. The inverse is common in bull markets.
14:10 - EXAMPLE 4
We are shown a Standard Triangle pattern. Each wave is a Corrective pattern.
Draw horizontal trend lines from Wave B to D and Wave A to C. See example.
Guideline: the start of Wave A and the end of Wave E should not touch the trend lines.
18:22 - TIPS & TRICKS
*If the rules of an Impulse wave are not met, you instantly know you are looking at Corrective price action.
*Sometimes it does not matter if you are trading Wave 2 or Wave B, since they both give opposite direction moves once finished.
*Alternation between Wave 2 and 4 is expected. They are generally not the same.