The 5-wave trends are then corrected and reversed by 3-wave countertrends.
Letters are used instead of numbers to track the correction.
Check out this example of a smokin’ hot corrective 3-wave pattern!
Just because we’ve been using a bull market as my primary example doesn’t mean the Elliott Wave Theory doesn’t work on bear markets.
The same 5-3 wave pattern can look like this:
According to Elliott, there are 21 corrective ABC patterns ranging from simple to complex.
“Uh 21? I can’t memorize all of that! The basics of the Elliott Wave Theory are already mind-blowing!”
Take it easy, young padawan. The great thing about Elliott Wave is you don’t have to be above the legal drinking age to trade it!
You don’t have to get a fake ID or memorize all 21 types of corrective ABC patterns because they are just made up of three very simple easy-to-understand formations.
Let’s take a look at these three formations. The examples below apply to uptrends, but you can just invert them if you’re dealing with a downtrend.
Zig-zag formations are very steep moves in price that goes against the predominant trend.
Wave B is typically shortest in length compared to Waves A and C.
These zig-zag patterns can happen twice or even thrice in a correction (2 to 3 zig-zag patterns linked together).
Like with all waves, each of the waves in zig-zag patterns could be broken up into 5-wave patterns.
Flat formations are simple sideways corrective waves.
In flats, the lengths of the waves are GENERALLY equal in length, with wave B reversing wave A’s move and wave C undoing wave B’s move.
We say generally because wave B can sometimes go beyond the beginning of wave A.
Triangle formations are corrective patterns that are bound by either converging or diverging trend lines.
Triangles are made up of 5-waves that move against the trend in a sideways fashion. These triangles can be symmetrical, descending, ascending, or expanding.