Irregular Correction Pattern of Elliott Wave Theory Explained

Compared to the impulse moves the corrective waves are difficult to identify and master and a major cause of traders losing a lot of the money made on the impulse moves. The graphic below is another example of three corrective structure combinations that can form triple three corrections. In the same fashion this particular one is a double three wave W followed by the first wave X being a zigzag.

elliott wave corrections

If wave 4 retraces more than 50% of wave 3, it is quite often not a wave 4. But the reversal after completion of wave of this correction is also sharp and sometimes doesn’t give chance to trade. Inner wave of an Irregular Correction is often sharp and destructive and it often shakes the confidence weak traders/investors before reversal. Wave is of Irregular Correction pattern is often sharp and fast which scare traders just before reversal, and the next move after completion of this Correction is often quick and sharp.

Traders can thus use the information above to determine the point of entry and profit target when entering into a trade.

Simple method to find the stock trading entry point.

Otherwise, price swings, the EW theory, and wave analysis work well on the Forex market, just as with any other financial instrument that has sufficient volume. Elliott wave works but more experience is often required and desired. Elliott Waves are an excellent tool for analysing the markets and for understanding the price movements.

elliott wave corrections

In Elliott Wave Theory , corrections occur between Impulse Waves and are normally made up of three monowave marked as wave a, b & c. It happens when simpler waveforms stick together to form a larger structure. This time the end of wave ‘b’ of the Elliott wave triangle is used to place a trend trade. Again, the same strategy applies, a low-risk trade can be placed at the end of wave ‘e’ with the idea of catching the market as it turns back into the trend.

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Attempts to identify recurring price movements within financial markets. These repetitive price movements are the result of a natural rhythm of crowd psychology that exists in all markets. You will need a sharp eye to spot these patterns, but once you begin to master corrections, you will understand how to recognize and trade these complex structures. Regardless of which degree you start the labeling process with, it is very important that you label comparative moves as the same degree.

This is because triangles are considered to be alternating to all other corrective patterns. That means even if wave 2 is a shallow sideways correction, a triangle can still appear in wave 4, but it is less likely. You might be confused in some of the areas highlighted as corrections as to why we have marked them as corrections even though the index is not correcting. In the above image, each and every highlighted part is one of the various possible forms of a corrective pattern. We will discuss the basic forms of corrective patterns in this article.

This is a good place to buy a pull back if you understand the potential ahead for wave 5. Still, fourth waves are often frustrating because of their lack of progress in the larger trend. To understand Elliott Wave fully, please take a look at the SWAT system which is extremely useful in approaching and trading markets with Elliott wave analysis. My method removes the guesswork from EW analysis by showing how price swings interact with moving averages, Fibonacci, and Fractals. If wave 2 is sharp (i.e. zigzag or extended zigzag) and deep (i.e. deep in the sense of how much it retraces the preceding wave 1), then wave 4 will most likely going to be sideways and shallow relative to wave 3.

The subdivision of wave W, wave Y, and wave Z can be a zigzag, a flat, a double three of smaller degree, or a triple three of smaller degree. The Wave X can be any corrective structure including a stand alone triangle. The first phase of the Elliott wave theory trading principle consists of 5 waves.


Motive sequence is much like the Fibonacci number sequence. If we discover the number of swings on the chart is one of the numbers in the motive sequence, then we can expect the current trend to extend further. Fibonacci Retracement in technical analysis and in Elliott Wave Theory refers to a market correction which is expected to end at the areas of support or resistance denoted by key Fibonacci levels. The market is then expected to turn and resume the trend again in the primary direction.

They can then label the price swings based on the Elliott Wave Theory. Once traders understand the previous waves, they can use the rules and guidelines of the Elliott Wave Theory to estimate the current wave and future waves. For instance, let us assume that there are 5 waves up that formed, followed by an ABC down. The bullish price action is against the previous downtrend. Wave predictions will eventually become confirmed or invalidated .

Impulsive waves (momentum/motive waves)

To solve the problem, SWAT system applies all the important EW principles into a complex yet easy EW Forex trading strategy. My method focuses on simple to understand rules based on moving averages, Fibonacci, Fractals, and the MACD. An impulsive wave is price movement that initiates progress in one direction, which is called the trend. Price usually moves more distance and quicker when trending.

Nifty formed repeated Irregular Corrective Patterns within this period which confused us multiple times. Irregular Correction is the indication of strong main trend and Reversal after completion of this pattern is often sharp and strong. 61% is minimum projection limit for wave , 100%-123% is normal projection limit but there is no maximum limit, it can project more than 123% depending upon previous wave.

Once traders can find a systematic way of analysing price swings, then they can start analysing waves and adding labels to those waves. After that, they can judge what is the current wave and potential next wave. At first, it is best to use this information for analysis before using it to make any type of trading decision. My SWAT course simplifies the learning curve by explaining a rules based approach for Elliott Wave trading based on moving averages, Fibonacci, Fractals, and the ecs.MACD oscillator. I also tell traders to focus on wave patterns that are simple to breakdown. Often trend traders buy in wave B but their trades get trapped as a larger retracement against the trend takes place in wave C.

At first, it’s best to use EW for analysis only and not yet for any trading decisions. Second of all, try to understand the logic of price swings first. EW theory labels those price swings and tries to understand their sequence. It takes time and the best approach is to develop your skills step by step. Corrective waves are against the trend (price movements that are reactionary in relation to the previous trend-setting move).

If neither wave 1 nor wave 3 is extended, then wave 5 probably will be extended. If wave 3 is extremely long and overstretched, wave is 5 more in danger of being truncated. Wave E will quite likely undershoot or overshoot the triangle trend line. Refer to image for main retracement and extension targets. Wave C can in principle be truncated (i.e. not go beyond wave A) but it is extremely rare.

If wave 3 is extended, then wave 1 and 5 are often nearly equal in magnitude and duration. If equality is lacking, a 61.8% relationship is next most likely. Price is often in a range and makes more erratic movements. This is again daily chart taken from my analysis report of 04 April 2019 .

Trade with caution, these products might not be suitable for everyone so make sure you understand the risks involved. To catch the market as it re-enters the trend to move again within it. The ABC correction wave usually appears in the position of previous day high and low trading strategy wave ‘2’. Wave alteration – If wave 2 is a deep correction – then wave 4 will be shallow. From these observations, Elliott was able to formulate an outstanding trading method that remains one of the most powerful trading approaches to this day.

My SWAT course 2.0 explains how to use these tools and concepts correctly to analyse and trade wave patterns. The classical five-wave structure is marked with the numbers and it should be followed by the simple a-b-c structure or the correction. The most important thing in this issue is actually the a-b-c and it is knowing whether it is a simple or a complex correction. By understanding the psychology between the market waves, an Elliott wave analyst can successfully predict price movements.

Traders can remove the guesswork from analysing EW by using moving averages and the ecsMACD oscillator. Analysing the price swings and waves becomes rules based and less subjective when using these methods. My SWAT course explains how to use these tools and concepts correctly to analyse and trade Elliott Wave patterns.. Elliott Wave Theory allows you to understand the psychology of price movement in the Forex, CFD and other financial markets.