Written and copyright © 2008-2013 by Thomas N. Bulkowski. All rights reserved.
This page describes the corrective phase of the Elliott wave principle, how price moves not in a straight line but in
a series of rises and retracements.
Shown is the three wave corrective phase (as opposed to the five wave motive phase) of the Elliott wave principle.
Price moves in a rise-retrace pattern that is similar to an incoming tide. The corrective phase retraces a portion of the prior up move that
was powered by the motive phase.
The chart shows a corrective wave when the trend of higher degree is bullish.
A corrective phase can come in a variety of flavors. General categories are: zigzag, flat,
triangle, or combination, and all of these can come in two styles:
sharp or sideways corrections. A sharp correction is just like it sounds, moving quickly against the larger trend. A sideways correction is
more sedate. It is a correction, but price tends to move horizontally over time whereas a sharp correction is more vertical.
The trend of the corrective phase need not be downward as the accompanying chart shows. This one occurs when the trend of higher degree is
bearish. Price corrects the downward move in three segments, upward moves A and C with a correction between, B.
Each segment of the corrective phase can be composed of smaller waves. The figure to the right shows an example. Notice how the ABC
correction has many sub waves. Think of a sub wave as a line segment. Wave A is composed of the 5-3-5-3-5 sequence of sub waves (line segments). Wave B shows 5-3-5.
Thus, the ABC correction can be deceptive and difficult to identify especially when additional combinations of corrective waves appear.
Corrective Elliott Wave Rules
The three wave corrective phase has rules that govern its shape. They are listed here.
- The corrective phase is composed of three waves and never five.
- Corrective waves can head up or down.
- The corrective phase aligns against the trend of one higher degree (a counter trend move).
- Tip: An initial five wave move against the prevailing price trend is not the end of a correction.
-- Thomas Bulkowski
Copyright © 2008-2013 by Thomas N. Bulkowski. All rights reserved. In America, anyone can be president. It's one of the risks you take.