ASX Charting Course

Chapter 34 The Elliot Wave Theory

Corrections

There are more variations in corrective waves than there are in impulse waves. Their complexity is often a function of the degree. That is as they become more varied they become more complex.

Elliot suggested that market corrections generally fall into four categories:

Zigzag Correction

A zigzag A-B-C type correction has 5-3-5 sub waves. This includes the double zigzag variation.

The zigzag correction is the most basic a-b-c type correction. The above example is obviously a bull market correction, with the impulse moves being against the trend in the next degree. The waves have been broken into their subcomponents.

Flat Correction

A flat correction is also an A-B-C type correction and has 3-3-5 sub waves. It also has variations called irregular and running corrections.

The flat correction above is also a correction to a bull market. Wave C in any flat correction generally terminates very close to wave A rather than significantly lower as in a zigzag. The tell tale characteristic is of course the wave count, which is 3-3-5. This then gives rise to several variations while still adhering to the basic wave count.

Irregular Variations

There are two variations to the flat correction and both are referred to as irregular corrections.

The B wave could actually make a new high, in the case of a bull market and the C wave could extend beyond wave A as in the above diagram. Flat corrections are seen as mild corrections as they do less damage to the underlying trend than their zigzag cousins.

If wave C drops below wave A (as in diagram 51) it can be interpreted as having a negative, dampening effect on the next impulse move, in this case higher.

If on the other hand, the C wave were to fall short of wave A, (as in Diagram 52) it could be interpreted as strengthening, supportive for the underlying trend and the next impulse wave.