If impulsive waves “five waves,” moving in the direction of the trend in one larger degree, then corrective waves are their opposite number, moving against the direction of the trend in one larger degree.
ABC Zigzag Correction
Given that corrective waves find difficulty in moving against the overarching trend, they tend to develop more complex patterns, and as such, are significantly more difficult to spot and correctly identify and label. In fact, hindsight is often the only time they become crystal clear, which has obvious limitations where analytics are concerned.
Where impulsive waves are governed by three rules, there’s just one governing corrective waves, and that is simply this: Corrective patterns can never have five waves. A five-wave pattern is always impulsive.
Where things get hazy, however, is the fact that corrective waves often develop complex substructures. These corrective substructures also move in the direction of the overall correction. There are four different “types” of complex corrective structures. These are:
The Zigzag Correction
Zigzags form a 5-3-5 wave pattern and are all (basically) the same, although they come in three different variations:
• And Triple
The Flat Correction
These form 3-3-5 wave patterns and like zigzags, come in three different variations:
• And Running
The Triangle Correction
These form 3-3-3-3-3 wave patterns.
Combination structures are exactly what they sound like. They are comprised of two structures in combination, known as “double threes” and “triple threes.” These structures are beyond the scope of this course material.
Zigzag Corrections, A Closer Look?
Zigzags can occur in either bull or bear markets. In both cases, they (by definition) move against the prevailing trend of one larger degree, in a classic three-wave pattern. In a bull market, when you see a zigzag pattern, it will appear in Wave 2, or Wave 4. In a bear market, it will occur only in Wave B.
Unlike the other corrective patterns, a zigzag is notable in that it always makes progress against the prevailing trend, which is to say that Wave B will not regain all the territory covered in Waves A, and Wave C will breach new territory, often extending considerably beyond the terminating point of Wave A.
As mentioned earlier, zigzags break into a 5-3-5 pattern, but what does that mean, exactly? It means that:
• Wave A is impulsive with regards to the zigzag itself, and as such, breaks down into five waves.
• Wave B is corrective with regards to the zigzag itself, and as such, breaks down into three waves.
• Wave C is again impulsive with regards to the zigzag itself, and as such, breaks down into five waves.
Although single zigzags are the most common variant seen, occasionally, they will repeat either once or twice. A zigzag that repeats once (with the pattern appearing for a second time) is called a double, while a zigzag that repeats twice (with the pattern appearing for a third time) is called, predictably enough, a triple.
When and where you see these patterns, the accepted labeling methodology is to use the letters W, X, Y, and Z. (I must note that these letters for labeling were added after Mr. Elliott’s time)
The “X” wave is the wave that connects two simple three-wave patterns. X waves themselves are corrective with regards to the larger corrective pattern, and as such, they break into a three-wave structure. Below, you’ll see graphical representations of this in both bull and bear markets.
Note that the patterns that evolve here can become quite complex, and bear in mind that wave forms can’t tell time, so you’ll often need to look at intraday pricing data in order for the full extent of the pattern to be revealed.
Flat Corrections, A Closer Look
Flat corrections differ from zigzags in two important ways. First, they tend to be much weaker corrections, in that they fail to make significant progress against the prevailing trend of one larger degree (thus the name). Second, unlike a zigzag pattern, they develop in a 3-3-5 pattern.
Weaker or not, since this is a correct pattern, the flat will occur in Waves 2 or 4 of a bull market, or Wave B in a bear market. Here’s an example of what that looks like:
mentioned, the flat is a relative weak correction. It’s most commonly seen correcting a strong impulsive wave. In essence, Wave A is a weak correction because its weakness unfolds in a three-wave pattern, instead of the traditional five-wave pattern. Wave B will usually retrace Wave A, ending somewhere near the start of the A Wave.
This three-wave characteristic of the A Wave is intriguing. It’s still considered an impulsive wave, but unlike other impulsive waves, it has a three-wave structure. Thus, A waves are said to have a “dual character.” They can either have an impulsive (1, 2, 3, 4, 5) structure OR a corrective structure (usually labeled a, b, c – note the lower case!)
Expanded flats are sometimes referred to as “irregular flats,” and this chart reveals the reason why. The B Wave retraces Wave A by more than 100%, and the C Wave extends beyond the end of the A Wave. Here’s a graphical representation:
Finally, there’s the matter of the “running flat.” This pattern is quite rare. It is similar in some
respects to the Extended/Irregular Flat in that the B Wave retraces Wave A by more than 100%, but the C Wave is marked by weakness, retracing only part of the A wave before terminating.
Here is a graphical representation of a running flat:
Here are graphical representations of the three types of flat corrections in a bull market:
And here are graphical representations of the three types of flat corrections in a bear market:
Triangular Corrections, A Closer Look
Triangles are distinct from both flats and zigzags in that they unfold in a set of five waves, rather than three. This trips many people who are new to Elliott Wave Theory up, because of course, the overwhelming majority of the time, corrective patterns unfold in a series of three waves.
Most commonly (although certainly not always) you’ll see triangles develop in Wave 4. Sometimes, you’ll find them in Wave B of a bear market, and once in a while, in the Wave X position. You’ll never see them in the Wave 2 position.
Note that triangles generally unfold fairly quickly.
Although triangles develop in five waves, each wave in this corrective pattern unfolds in three waves, which is why we say that the triangle itself is a 3-3-3-3-3 pattern. This is confusing when explained verbally or textually, so here’s a graphical representation of what we’re talking about:
Note that triangles can take other shapes besides the one shown here (with the top falling and the bottom rising). These other shapes are:
• Expanding (top rising, bottom falling)
• Ascending (top flat, bottom rising)
• And Descending (top falling, bottom flat)
Again, it’s important to note that regardless of what shape the triangle takes, each subtype breaks down into the familiar 3-3-3-3-3 pattern.
Complex Corrective Structures, A Closer Look
There’s some confusion on this topic. Elliott himself referred to these patterns as “double threes” and “triple threes” but the confusion stems from the fact that triangles (which are included in the possible combinations of complex corrective structures) unfold in a series of five waves.
In a nutshell then, complex corrective structures can be any combination of zigzags, flats, or triangles.
When these appear, the lettering convention used is the same as we’ve already demonstrated when showing examples of double or triple zigzags. An “X-Wave” denotes the linking wave, with waves W, Y, and Z being used for the additional corrective patterns.
Clearly, given the above, there are a vast array of possible combinations possible. Prechter offers an assist here, suggesting that there are some limiting factors on the number of possible combinations, including the following observations:
• You’ll never see more than one zigzag in a combination
• Generally speaking, if there’s a triangle present, it will appear as the last “three.”
• There’s never more than one triangle present
These rules are at least somewhat problematic, because as we have seen, double or triple zigzags are entirely possible, so we’d take issue with that “rule,” however the observations regarding triangles seem both reasonable and valid.
Note that even the most seasoned Elliott Wave Analysts struggle to correctly identify and deal with complex corrective structures. Again, we stress that these lie beyond the scope of this course material, so we won’t spend any more time on them, but students should certainly be aware of their existence!
Module #3 Summary
• There are four types of corrective structures:
• Double or triple zigzags are possible
• Zigzags unfold in three-wave structures forming 5.3.5 patterns
• They are the strongest “type” of correction, always making progress against the larger trend
• Double and triple zigzags are denoted using the letters W, Y, and Z, with the X-wave being the connecting wave in the pattern
• Can appear as regular, expanded, or running flats
• They unfold in three waves, forming a 3-3-5 wave pattern
• They are a weak form of correction that fails to make significant progress against the prevailing trend.
• Wave A of a flat correction is an exception to the rule that impulse waves unfold in a five-wave pattern, giving these A-Waves a dual nature
• Can appear as basic (top falling, bottom rising), expanding (top rising, bottom falling, ascending (top flat, bottom rising), or descending (top falling, bottom flat)
• They unfold in five waves, forming a 3-3-3-3-3 pattern
• You will see, on a semi-regular basis, a triangle where wave B retraces wave A by more than 100%
• Combination structures
• Can be any combination of zigzags, flats, or triangles
• X, W, Y, Z lettering is used for the labeling of these structures
• Combination structures are highly complex and difficult to identify, and are beyond the scope of this course material (so you won’t be tested on them)