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A price action trader’s analysis may start with classical technical analysis,patterns including trend lines, break-outs, and pull-backs, ...Read More
Markets move against the trend of one greater degree only with a seeming struggle. Resistance from the larger trend appears to prevent a correction from developing a full motive structure. The struggle between the two oppositely trending degrees generally makes corrective waves less clearly identifiable than motive waves, which always flow with comparative ease in the direction of the one larger trend. As another result of the conflict between trends, corrective waves are quite a bit more varied than motive waves.
Corrective patterns fall into four main categories:
1. Zigzag (5-3-5; includes three types: single, double, and triple)
2. Flat (3-3-5; includes three types: regular, expanded, and running
3. Triangle (3-3-3-3-3; four types:
three of the contracting variety
(ascending, descending, and symmetrical)
and one of the expanding variety
4. Combination (two types: double three and triple three)
1. ZIGZAGS (5-3-5 includes three types: single, double, and triple)
A single zigzag in a bull market is a simple three-wave declining pattern labeled A-B-C and subdividing 5-3-5. The top of wave B is noticeably lower than the start of wave A, as illustrated in Figures 9 and 10.
Occasionally zigzags will occur 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 (see Figure 11) or triple zigzag. The zigzags are labeled W and Y (and Z, if a triple).
Flat (3-3-5; includes three types: regular, expanded, and running
A flat correction differs from a zigzag in that the subwave sequence is 3-3-5, as shown in Figures 12 and 13. Since wave A lacks sufficient downward force to unfold into a full five waves as it does in a zigzag, the B wave reaction seems to inherit this lack of countertrend pressure and terminates near the start of wave A. Wave C, in turn, generally terminates just slightly beyond the end of wave A rather than significantly beyond as in zigzags.
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.
Three types of 3-3-5 corrections have been identified by differences in their overall shape. In a regular flat correction, wave B terminates about at the level of the beginning of wave A, and wave C terminates a slight bit past the end of wave A, as we have shown in Figures 12 and 13. Far more common, however, is the variety called an expanded flat, which contains a price extreme beyond that of the preceding impulse wave. In expanded flats, wave B of the 3-3-5 pattern terminates beyond the starting level of wave A, and wave C ends more substantially beyond the ending level of wave A, as shown in Figures 14 and 15.
In a rare variation on the 3-3-5 pattern, 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.
3. Triangle (3-3-3-3-3; four types)
Triangles are overlapping five wave affairs that subdivide 3-3-3-3-3. They appear to reflect a balance of forces, causing a sideways movement that is usually associated with decreasing volume and volatility. Triangles fall into four main categories as illustrated in Figure 16. These illustrations depict the first three types as taking place within the area of preceding price action, in what may be termed regular triangles. However, it is quite common, particularly in contracting triangles, for wave b to exceed the start of wave a in what may be termed a running triangle, as shown in Figure 17.
4. Combination (two types: double three and triple three)
COMBINATIONS (DOUBLE AND TRIPLE THREES)
Elliott called sideways combinations of corrective patterns “double threes” and “triple threes.” While a single three is any zigzag or flat, a triangle is an allowable final component of such combinations and in this context is called a “three.” A double or triple three, then, is a combination of simpler types of corrections, including the various types of zigzags, flats and triangles. Their occurrence appears to be the flat correction’s way of extending sideways action. As with double and triple zigzags, each simple corrective pattern is labeled W, Y and Z. The reactionary waves, labeled X, can take the shape of any corrective pattern but are most commonly zigzags. Figures 18 and 19 show two examples of double threes.
For the most part, double threes and triple threes are horizontal in character. One reason for this trait is that
there is never more than one zigzag in a combination. Neither is there more than one triangle. Recall that triangles occurring alone precede the final movement of a larger trend. Combinations appear to recognize this character and sport triangles only as the final wave in a double or triple three.
All the patterns illustrated in this booklet take the same form whether within a larger rising or falling trend. In a falling trend, they are simply inverted.
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