Corrective waves are distinguished by the fact that the main part of their movement is in the direction opposite to the current trend. Such waves are not obvious and are rarely presented on the chart in a classic form. In addition, if a normal trend movement is formed on the basis of five steps, then a correction is usually observed. Occurs in three waves, where Elliott waves give an accurate picture of the market.

Types of correction in wave theory

Corrective waves come in a wide variety, but in general there are 4 main types:

1. Zigzag.
2. Flat.
3. Triangles.
4. Threes.

If the first three varieties can be found very often, then “threes” are practically never found in the modern market. Therefore, this article is based on consideration of those types of corrective movements that a trader can encounter every day.

Corrective wave "Zigzag"

Zizgzag is a classic correction of three waves that are characteristic of any movement. A distinctive feature of price behavior in this case is expressed by the sequence 5-3-5. This means: 5 correction waves, 3 pullbacks and again 5 correction waves.

A very important point that you should definitely pay attention to when identifying zigzags is that top “B” should not be higher (lower) than top “A”. In this case, peak “C” should form an extremum, which will be more pronounced than peak “A”.

Flat corrective waves

The main difference between flat corrections and zigzag ones is a different construction sequence, expressed in numbers: 3-3-5. This allows us to speak of a shortened first corrective wave, which, however, can only strengthen the received signal. In this case, Elliott himself said that the first movement is not even corrective in its pure form, but rather consolidating.

Important features of figure formation:

• The top of "B" reaches the bottom of wave "A".
• The top of the “C” extends to the level of the “A” and in rare cases can create a slightly longer and more pronounced movement.

It should be understood that all these rules were formed for an ideal market, but very often you can find formations in which there will be strong divergences from the specified conditions. This may be expressed in lengthening of the waves, in a brighter correction, but in any case, all this should be described by the formula 3-3-5.

Triangles in correctional waves

If we consider the classical scheme of wave analysis, then it consists of five waves, two of which are corrective. The experience of practicing traders indicates that the appearance of triangles on the chart fits perfectly into this rule, and the triangles themselves, as a rule, appear on the fourth wave (second correction). As a result, such triangles are identified by the trader as a signal to continue the previous trend, since the market is forming a new, third, impulse wave.

In classical technical analysis, we considered triangles as a fairly strong pattern. It is noteworthy that the wave theory only enhances this significance, since it allows you to more clearly formulate the rules for entering a transaction and determine promising levels that can be reached by the price. In total, there are 4 types of triangles, where the correctional wave itself is no longer so important:

• Rising. The bottom edge is directed upwards.
• Descending. The bottom edge is directed downwards.
• Symmetric. Both sides of the triangle converge.
• Expanding. The triangle is expanding ahead of the breakout.

This is how corrective waves appear in Eliot's theory. They definitely complement a trader’s trading arsenal and allow a more precise approach to the issue of opening positions. And Elliot waves help with this.

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Corrective waves- the main “trinity” of waves on the Elliott chart, directed in the opposite direction from the more powerful trend. Today, there are several main forms of corrective waves - flat corrections, a group of zigzags and triangles.

The essence of corrective waves

Wave analysis is a special marking of a chart into waves. The latter are of two types:

- moving waves. The peculiarity of such waves is that they form the main movement of the trend and have great length and strength. In some cases, driving waves can have a length of 50-70 points or more (here everything depends on the timeframe in question);

- corrective waves differs in much shorter length. Moreover, they are always directed against the main direction of the trend. In practice, corrective waves are not able to break through more powerful driving fluctuations. Moreover, after they end, a new upward impulse always begins. In the event of a breakdown, the corrective wave becomes the driving wave, but in this case it takes the opposite direction.

Today, there are two main types of corrective triangles - converging and diverging. The first, in turn, are symmetrical, descending and ascending. The second (divergent) have no other types and are considered one of the rarest figures.

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In a simple and accessible form, provide the basics of a basic course on wave analysis by Ralph Elliott- the most expensive of all kinds of “Forex training” courses and the most difficult of all sections of technical analysis of trading.

We have this material from the 11th grade of the School of Beginning Traders at the Academy Masterforex-V on a closed forum, where training begins from scratch - a basic school course, then Elliott wave analysis models and their interpretations of MF are used in the form of tips on a closed Academy forum.

To understand the essence of Elliott wave analysis, you need to understand 3 things, without which it will be difficult for you to become an experienced professional trader who makes a living from trading:

Below are Elliott wave analysis models. It is unlikely that you will remember them the first or even the second time, but try to simply determine for yourself where:

• trend - an impulse on which to open trades;
• and where is the correction, understanding that this knowledge is an obligatory PART of your future professionalism and success in Forex.

Elliott wave theory provides an algorithm for the movement of Forex currency pairs

The trend (impulse waves) has a 5-wave structure (waves are designated by numbers 1, 2, 3, 4, 5, A, B, C) and consists of impulse and correction waves.

1. Impulse waves 1, 3, 5:
   • longer than correction waves;
   • show the direction of the trend.
2. Correction waves:
   • The 2nd and 4th waves, each of which has a 3-wave structure (a-b-c) and show the direction opposite to the current trend.

Rice. 2. Drawing of an upward (bullish) trend

The meaning of Elliott waves for a Forex trader

1. To work with a trend, you need to see the DIRECTION of the trend - impulse waves that are longer than correction waves.
2. Wave analysis allows you to see at what point in the movement currency pairs are in terms of the structure of the wave movement (a trend is beginning or is already ending).
3. Trend wave movement targets (if the top of the 1st wave is broken, then the 3rd wave will reach at least 162%).

Structure of sub-waves in a trend

1. The 1st, 3rd, 5th waves of the impulse have a 5-wave structure of their subwaves.
2. Correction waves (2 and 4) have a 3-wave structure and are designated A-B-C.

Rice. 3. Wave structure of impulse and correction
Rice. 4. Sub-wave structure

Characteristics of each wave

• Wave 2 = 0.382-0.618 of the length of the 1st wave.
• 3rd wave = 1.618-2.618 lengths of the 1st wave.
• 4th wave = 0.382-0.5 length of the 3rd wave.
• Wave 5 = 0.382-0.618 of the length of the 3rd wave (wave 5 = 1.618x1 wave if it is extended).

• Wave A = 1, 0.618-0.5 wavelength 5.
• Wave B = 0.382-0.5 wave A length.
• Wave C = 1.618 or 0.618-0.5 wavelength A.

• In the 2nd wave A=B=C, or A=0.618×1 wave, B=0.618×A wave, C=0.618×B wave, that is, a converging triangle.
• In the 4th wave A=C, or A=0.618×3 wave, B=0.618×A wave, C=0.618 (or 1.618)×B wave.
• In the 4th wave B = 0.236×A wave.

Waves and sloping trend channels

• the top of the 1st and 3rd waves;

This will allow you to see

• the top of the future 5th wave.

Drawing

• then after the end of the 4th wave - the Final Channel.

Rice. 5. Temporary inclined channel
Rice. 6. Final inclined channel

Extended and truncated waves

• the top of the 1st and 3rd waves;
• parallel channel from the bottom of the 2nd wave.

This will allow you to see

• expected level of retracement of the 4th wave;
• the top of the future 5th wave.

Drawing

• first the temporary channel (Temporary Channel);
• then after the end of the 4th wave - the Final Channel.

Rice. 7. Extended 3rd wave Rice. 8. Types of extensions

Questions for the next level of training (Masterforex-V Academy)

• Why can the number of elongated waves in an impulse be 5, 9, 13... (name the numbers below)?
• Why can the number of elongated waves in a correction be 3, 7, 11... (name the numbers below)?
• What formula do the classics of wave analysis have for counting sub-waves of extension in an impulse and correction?
• If the number of subwaves in the extension is 15 and 17 - which of them is an impulse wave, and which is a correction of the older one?

Truncated waves

The 5th truncated wave does not break through the peak of the 3rd wave. Criteria for the truncated 5th wave:

• has a 5-wave structure;
• truncation usually occurs after an extremely strong 3rd wave.

Rice. 9. Truncated fifth wave
Rice. 10. Bullish and bearish truncation

Fibonacci levels and Elliott waves

The Fibonacci sequence is numbers in which each subsequent number is equal to the sum of the previous two 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, etc.

Fibonacci Levels (Golden Ratio)

• After the first few numbers in the sequence, the ratio of any number to the next highest one is approximately 0.618 to 1, and to the next lowest one is approximately 1.618 to 1.
• The ratio between consecutive numbers in the sequence is approximately 0.382, which is the inverse of 2.618 (1:2.618*).

This ratio is used in wave analysis to calculate the targets for the movement of impulse and retracement waves.

1. Impulse wave = Fibonacci extension levels (162-362% of the 1st wave).
2. Correction wave = 23-76% of the previous wave.

Respectively,

Alternative-3 force majeure = cancellation of the 5-wave trend (additional wave criteria). Drawings.

Right

Rice. 16. Third wave of the correct length

The meaning for a trader of the axioms of wave analysis and force majeure that cancel momentum

1. If the impulse is canceled there is no continuation of the trend.
2. The currency will not stand still (if it cannot go up, then it will go down).
3. At the Masterforex-V Trading Academy, both options of the trading plan are given daily with clear criteria for transitioning from one option to the other.

Typical mistakes of traders

Elliott wave levels

Essence:

• the market moves according to the laws of the wave theory of several wave levels;
• one wave level = 5 impulse waves and 3 correction waves;
• a complete cycle of 5 waves of impulse and the 3rd wave of correction is just one wave of a higher level;
• this higher level wave is just a sub-wave of the next level.

Prechter gives 8 levels for wave numbering using the following "close to Elliott" symbols.

Table 1 Classification of wave levels according to Prechter

Thus, according to Prechter’s calculations (a continuation of the logic of Elliott’s calculations) since 1932, the rise of the US stock market is in the 5th wave of the 3rd (main) level.

• 1932-1937 - the first wave of the main level;
• 1937-1942 - second wave of the main level;
• 1942-1966 - third wave of the main level;
• 1966-1974 - fourth wave of the main level;
• 1974-19?? - fifth wave of the main level.

Rice. 21. Supercycle according to Prechter

An example of the designation of waves by classical wave operators and their interpretation

Rice. 22. Classic wave marking of market movement

Explanation of the picture:

• 1st wave of intermediate level;
• consists of 5 waves of the secondary level (1), (2), (3), (4), (5);
• The minute level shows waves 1, 2, 3, 4, 5 a-b-c.

Wave structure of several wave levels

Rice. 23. Wave level ratio

Diagonal triangles as special 1st and 5th waves of impulse

Special wave formations in impulse waves of the 1st or 5th wave, in which the 4th subwave (of a smaller level) enters the zone of the 1st wave.

Signs of a trend reversal from the point of view of wave analysis

1. Finite diagonal triangle.
2. Extended 5th wave.
3. Truncated 5th wave.

Correction models and principles of their alternation

The 2nd and 4th waves are corrective.

Rice. 29. Corrective waves in a five-wave pattern

The movement on these waves takes the form of the following correction patterns:

1. Zigzags (5-3-5) (Zigzags), or simple (zigzag) correction.
2. Flats (3-3-5), or flat correction.
3. Triangles (3-3-3-3-3) (Triangles), or Triangular correction.
4. Double threes and triple threes (combined structures).
5. Wrong correction.

Classic wave analysis correction models

Simple (zigzag) correction (sub-wave structure 5-3-5).

Rice. 30. Corrective figure “Zigzag”

Its variety is double zigzag

Rice. 31. Corrective figure “Double Zigzag”

Flat correction (sub-wave structure 3-3-5)

It differs from the previous model (zigzag) in that:

• the sequence of its subwaves is 3-3-5;
• has the shape of a flat (flat) instead of a directional movement, as in a zigzag correction;
• usually precede or follow wave extensions.

Rice. 32. Correction figure “Plane”

Triangular correction, or horizontal triangles

• 3-3-3-3-3 and are marked a-b-c-d-e.

Rice. 33. Horizontal triangle

Double and triple triplets

Rice. 34. Double three Rice. 35. Triple Three

There are two types of triangles: convergent and divergent.

Convergent triangle

Rice. 36. Converging triangle Rice. 37. Converging triangle
Rice. 38. Converging triangle in the fourth wave

Divergent triangle The principle of alternating correction models in depth and structure on the 2nd and 4th waves

The essence of the alternation is that if the 2nd wave is a sharp correction, then the 4th wave will be a sideways correction and vice versa.

Rice. 42. Simple 2nd wave and complex 4th
Rice. 43. Simple second wave and complex 4th

Brief conclusions of Masterforex-V about Elliott wave analysis

1. This is a brief essence (basics) of Elliott wave analysis, set out in hundreds of pages of books by Prechter, Frost, Fischer, Vozny, Balan and other classical wave scientists.
2. This material in one form or another is given at expensive courses at Dealing Centers and brokerage companies as the highest stage of Forex technical analysis.
3. This material is presented in the Masterforex-V Academy as initial stage of Forex analysis and training (11th grade of the School for Beginning Traders at the Masterforex-V Academy).
4. At the closed forum of the Academy (the theory of the Masterforex-V trading system, other trading systems and DAILY practice in applying the theory to specific trades) - numerous examples of methodological and practical errors of classical wave analysis of trading, including examples of how masters of wave analysis in 6 working days They redo their previous wave analysis 5 (!) times. Thus, currency pairs absolutely do NOT go in the same way or where the “laws” of wave analysis as interpreted by a specific master (D. Vozny, etc.) prescribe for them.
5. In subsequent chapters of the book, we will try to come to the METHODOLOGICAL shortcomings of specific methods of Elliott wave analysis, solving specific UNSOLVED mysteries of classic Elliott wave analysis in the Masterforex-V trading system, which, I hope, will help traders in working on Forex.

There are no particular problems when classifying wave models that describe the current phases of price movement.arose: there were discrepancies in terminology, inaccuracies in descriptions of properties, vague formulations - but all this was easily corrected. When classifying models describing counteractingphases of price movement turned out to be more complicated: there are so many authors and so many classifications of models.

First you need to figure out which authors’ models need and can be taken into account. Which authors are considered classics?
What is wave analysis in the minds of most traders? The answer is obvious: R. Elliott's wave theory. However, this idea is wrong.
Firstly, R. Elliott cannot be called a pioneer. He borrowed the idea from D. Doe.
Secondly, R. Elliott, having made a number of very important observations, only described them, without giving explanations, without creating a clear classification of wave patterns, or a complete set of rules for their recognition.
His followers, who are considered as “the classics of EWA: A. Frost and R. Prechter, R. Balan and others, only refined and supplemented his observations. IN
the result was not exactly what R. Elliott proposed, but also not supported by justification. For some reason the changes they brought were not
separated from the observations of R. Elliott.
There were other developers of the wave theory who took different paths in transforming R. Elliott's observations: Tom Joseph, Robert Miner, Mircea
Doloka. And, of course, Glenn Neely. Moreover, for some reason these authors who tried to substantiate the theory are not classified as “classics”, but they believe that everything described in
literature completely relates to the theory developed by R. Elliott.

Let me give you a few examples.
R. Elliott considered a diagonal triangle with the structure: 3:3:3:3:3 = :5 and the overlap of the top level of wave-1 with wave-4 as the final model of the driving or corrective phase of the price movement. Accordingly, as wave-(5) or wave-(C). The logic is simple, a diagonal triangle, like a wave model, describes a state of uncertainty in the continuation of a given direction of price movement.
A. Frost and R. Prechter proposed a new model: a diagonal triangle with the structure: 5:3:5:3:5 = :5, overlapping the level of the top of wave-1 with wave-4 and
location as wave-(1) or wave-(A). This is how the initial diagonal triangle appeared as a pattern demonstrating uncertainty in reversal
price movement. The first difference is in theory.
R. Balan in his book “The Elliott Wave Principle” devoted an entire chapter to describing deviations from the rules.
For example, about a change in structure: wave-(C) in a zigzag can be a double or triple zigzag. In a complex correction (double or triple zigzag), after the first X-wave, a horizontal triangle may appear as wave-(Y), and in the wave plane, instead of wave-(B), a diagonal triangle may appear, also with the structure: 5:3:5: 3:5 = :5 (with a supporting drawing). Why is that? R. Balan does not explain, but writes that the rules for substituting structures should simplify the analyst’s life. The interpretation of the rationale for changing the rules is more than original.

Further, A. Frost and R. Prechter, in order to facilitate marking, proposed replacing the marking A-B-C-X-A-B-C-X-A-B-C with the marking W-X-Y-X-Z in double and triple zigzag, or double and triple triple. At the same time, waves W, Y, Z are simple corrections. It is very clear that a complex correction consists of simple ones. Then D.
Vozny, in the Elliott Code, writes that each of the W-Y-Z waves can be a complex correction, for example, wave-(W) of a higher wave level becomes
structure with a complex correction, like w-y-z-x-w-y-z-x-wy-z. Perhaps such complex corrections do occur, but these are completely different models.
These are the most harmless differences from the original theory of R. Elliott. There are more serious differences.

Now I just want to emphasize that not all interpretations in wave analysis belong to R. Elliott. Many researchers have supplemented and modified it
theory of observations.

In this regard, the “improvements” of the wave theory by Glenn Neely look the least “harmless” and the most justified in comparison with the interpretations of the “classics”. Glenn Neely's concept is much closer to R. Elliott's theory than other "gurus". However, there is an opinion that Elliott wave analysis according to Glenn Neely is some other wave analysis.
Contrary to prevailing beliefs, Glenn Neely's method does not contradict traditional wave analysis; such a judgment does not correspond to reality. G. Neely did not question any of the basic principles of R. Elliott's observations; he only significantly supplemented them.

The fact is that the works of R. Elliott and his followers describe only the qualitative side of the issue.
Classical wave analysis takes many liberties in identifying wave patterns. As a result, there are many valid markup options and there is no sufficient basis for choosing a single scenario. Glenn Neely, in his book Mastering Elliott Wave Analysis, on the contrary, described an algorithmic approach
to wave theory, which involves a quantitative description of known wave models.

The opinion about a “different method” is due to a rather complex presentation of the material, the introduction of new models and changed terminology. For example, renaming the end diagonal triangle to terminal pulse. This renaming is logical, but the introduction of terms such as: tapering triangle with reverse reverse, I won’t even comment. Of course, you can write it correctly: “a triangle with converging generators and reverse alternation of waves - (B) and - (D).”
If in “Mastery of Elliott Wave Analysis”, despite the terminology, it is not difficult to understand the models, then the innovations that followed in NEoWave are sometimes
are perplexed by the new classification and the introduction of such models as neutral triangle, reverse alternation triangle, etc. may be somewhat far-fetched. Also
the introduction of new models of complex correction is controversial: Diametric formation as a seven-wave model of complex correction, and Symmetrical formation as nine
wave model. A comparison of the theories of G. Neely and R. Elliott can be carried out only by comparing wave models and their properties, without touching on other aspects of G. Neely’s theory.

Now let's move directly to simple modelscorrection – models that describe the phases of counteracting price movement.
It would seem that we could take a simple route - take all the models from all the authors and bring them together. We tried it with small adjustments, from the point of view
ordering the classification, this method worked.
General classification based on internalmodel structure:
Simple corrective models:
ZigZag, correction model with structure:5:3:5 = :3;
Flat, correction model with structure:3:3:5 = :3;
Horizontal Tringles, correction model with structure:3:3:3:3:3 = :5.
Complex corrective models:
Dodle & Triple ZigZag, like complex deep correction models;
Dodle & Triple Tree as complex extended correction models.
From the point of view of terminology and description of the properties of models, even more problems have emerged. Therefore, we decided to create our own classification system for simple corrective models.

Principles of classification in groups of models:

1. Wave-(A) is the first of the formed waves of the correction model. We do not yet know its length, duration and structure. We don’t know anything at all about what kind of correction model will be formed, and we can’t make any assumptions. Therefore, all subsequent terminology and description of the properties of correction models are based on the structure and length of wave-(A).
2. If wave-(B) does not exceed the length of wave-(A) and is formed according to the rules of classical wave analysis, this model is defined as “correct”.
3. If wave-(B) crosses the base of wave-(A), then an “incorrect” correction model is formed and the word is added to its name Irregular.
   In this case, the wavelength (B) cannot be infinite and for different classes of correction models is limited in proportions relative to the wavelength (A) to well-defined values.
4. If wave-(B), crossing the base of wave-(A), violates these proportions, then a moving wave model is formed and the word is added to its name Running– “very incorrect” correction model. At the same time, the proportions of wave-(B) and wave-(A) lengths are also limited to certain values ​​for each class of correction models.
5. After waves-(A) and –(B) are formed, we know their lengths, durations, length ratios, relative positions of wave peaks and structure, we can evaluate the formation of wave-(C).
6. The first principle by which wave-(C) is recognized as a model of the same wave level with waves-(A) and -(B) is the length of wave-(C). In none of
   wave correction models, it cannot be less than 38.2% of wavelength-(A).
7. If the wavelength (C) is from 38.2% to 100% of the wavelength (A) - it is “weak”, and the entry will be added to the model name (C)-waveFailure.
8. If the wavelength (C) is from 100% to 161.8% of the wavelength (C) - it is “normal”, and there are no additional entries in the model name
   is produced.
9. If the wavelength (C) is from 161.8% to 261.8% of the wavelength (A) - it is “strong” - elongated, and the entry is added to the model name (C)-wave Extended.
10. In some cases, during the formation of wave planes, wave-(B) may turn out to be weak, in which case the model receives an extension in the name as (B)-wave Failure. If both wave-(B) and wave-(C) are weak, an entry is added DoubleFailure.

Below are the table “General classification of corrective models of price movement” and the table “Classification of simple correction models”. Each class separately and complex correction models will be discussed in subsequent articles.

From the names of the models given in the table, it becomes clear that we refused to introduce “personal” names for correction models. Whether a corrective model belongs to one class or another is determined by the internal structure of the component waves. Within the class, the division of models occurs in accordance with the ratio of the lengths of the component waves and the relative position of their wave peaks. Zigzags, wave planes, and horizontal triangles fit perfectly into this pattern. All proportions of wavelengths are specified with a tolerance, which eliminates the appearance of “white spots”, when it is impossible to identify any one model, and the uncertainty in recognizing a model, when it is possible to choose both.

There are empty cells left in the table. Should I fill them out or not?
Initially, no models “worthy” of filling in the empty cells were identified on the real charts. Although, following the presented logic of reasoning, they should have been revealed. It’s like in D.I. Mendeleev’s table of elements: there is a table, there are empty cells, but they are gradually filled. Not all at once, and the presented work on classification was not done in one year.

Let's consider the possibility of filling cells.

For example, wave-(B) in the classical zigzag model can be 1-61.8% of the length of wave-(A). Therefore, taking the range of 1-38.2% of the wavelength-(A)*, we can distinguish the model as a “zigzag with a weak wave-(B)!!! But is this necessary in a pragmatic sense for trading? I think no.

Second example. Let's consider an irregular horizontal triangle in which wave-(B) is greater than wave-(A) and wave-(C) is greater than wave-(B). Generators A_C and B_D are converging, but there is no such model in the classical classification of converging horizontal triangles. Glen Neely has a similar model at NeoWave, but it’s called neutral triangle. Such models also actually appear on charts. Therefore, such a model can be identified. The cell in the classifier can be filled in!!!

The classification has been compiled.
We will continue the conversation about the possibility of filling cells, permissible limit values ​​of wave proportions, specific models of each class in the following publications.

But let's start with examples that explain why all this is needed:

Wave plane, simple extended modelscorrections: Double Failure Flat and (B)-wave Failure Flat.
This example presents models of a wave plane with weak waves-(B) and –(C) and a weak wave-(B).
A typical mistake in identification is to consider wave-(B) with structure:3 as the first wave of the subsequent upward movement!!!
It is a three and does not overlap the previous extreme!!! Consequently, the correction has not yet been completed - there is no confirmation of its completion according to the rule of the relative positions of wave peaks of the same wave level.
The main problem with this error is not simply incorrect model recognition. Incorrect recognition is the incorrect setting of forecasting tools (to the wrong vertices), which leads to the wrong goals.

But the problem may be more serious.
Irregular wave plane with weak wave-(C) and moving wave plane with weak wave-(C) are treacherous models for recognition.
The first wave of correction - (A) is a three and can be taken as the entire correction if its proportion to the previous price movement is not taken into account.
Further, without paying attention to the fact that wave-(B), overlapping the base of wave-(A), is also a three, they take the configuration as waves-4 and -5, setting targets for a reversal. The difficulty of recognition is aggravated by the (C) wave formed in the wave plane as a five. Expectation of reversal 100%! BUT!
The main problem with this error is not simply a misrecognition of a reversal - this pattern indicates the weakness of the correction and the strength of the subsequent movement, usually accompanied by a lengthening wave. The consequences are quite clear!
A trader who stands on the reversal finds himself facing the start of a powerful continuation of the movement.

Igor Bebeshin (Putnik)
Email: [email protected]
http://www.dml-ewa.ru/
Skype: fibonacciclub

Lesson 11: Predicting Corrective Waves

CORRECTIVE WAVES

Depth of corrective waves (limits of a bear market)

No market approach, unlike the Law of Waves, provides a satisfactory answer to the question “To what point is a bear market expected to fall?” The initial indication is that corrections, especially when they themselves act as fourth waves, tend to perform their maximum retracement to the area of ​​development of the previous fourth wave at a level lower, in most cases approximately to the level of its end.

Example #1: Bear Market 1929-1932

A chart of stock prices normalized to the dollar developed in A Framework for the Study of Cycles (1977 by Gertrude Scherk*) shows a converging triangle as wave (IV). It ends within the area of ​​the previous fourth wave of the Main (Cycle) wave level, a diverging triangle (see graph below).

Example #2: 1942 Bear Market Bottom

In this case, wave II of the Main (Cycle) wave level (bear market from 1937 to 1942),

zigzag ends within the wave area of ​​the bull market from 1932 to 1937 (see Fig. 5-3).

Example #3: 1962 Bear Market Bottom

The wave dive in 1962 brought the index down just above the 1956 high point of the five-wave Primary wave sequence from 1949 to 1959. Normally, the bears would have reached the wave (4) zone (the corrective fourth wave within wave ). This small oversight, however, illustrates why this principle is a guideline and not a rule. The wave extension of the strong previous third wave, the short wave A and the strong wave B in the wave show the power of the wave structure, which leads to a moderate final correction depth.

Figure 5-3

Example #4: 1974 Bear Market Bottom

The final decline in 1974, ending the corrective wave IV (1966-1974) of the Primary (Cycle) wave level, from the general rise of wave III since 1942, brought the index down into the area of ​​​​the previous fourth wave level below (wave of the Primary (Primary) wave level) . Again, Figure 5-3 shows what happened.

Our analysis of small level wave sequences over the past twenty years has further strengthened the assertion that the normal limit of any bear market is the area of ​​development of the previous fourth wave level below, especially if the bear market in question is itself a fourth wave. However, in a perfectly fair modification of this instruction, it is often a fact that if the first wave in a sequence lengthens, the correction following the fifth wave will have its usual limit at the bottom of the second wave of a smaller wave level. For example, the fall in the DJIA in March 1978 bottomed out exactly at the low of the second wave (March

1975), which followed an extended first wave from December 1974.

Sometimes flat corrections or triangles, especially those following wave extensions (see Example #3), simply fail to reach the fourth wave area. Zigzags sometimes cut deeply and move into the area of ​​the second wave of the lower wave level, although this happens almost exclusively when the zigzags themselves are second waves. A “double bottom” is sometimes formed in exactly this way.

Behavior following fifth wave extensions

The most important rule of thumb that can be derived from our observations of market behavior is that when wave five develops as a wave extension, the subsequent correction will be sharp and will find support at the low of wave two of that extension. Sometimes the correction may end where shown in Fig. 2-6. Although there are a limited number of actual examples, the precision with which “A” waves reverse to the low of subwave two of the previous extension of the fifth wave is astounding. Figure 2-7 is an illustration involving an extended flat correction. (For further reference, please note two real-life examples that we will show in the charts of the upcoming lessons. An example involving a zigzag can be found in Fig. 5-3 at the low mark of wave [A] included in wave II, and an example including an extended plane, can be found in Fig. 2-16 (Lesson 15*) at the lower mark of sub-wave a, included in sub-wave A of wave 4. As you will see in Fig. 5-3, sub-wave A of wave (IV) ends near sub-wave 2 waves (5), which is a wave extension of wave V from 1921 to 1929).

Since the low of the second wave of an extension wave is in most cases in or near the territory of the previous fourth wave of the higher level, this indication implies behavior similar to the previous (initial*) indication. However, it is notable for its accuracy. Additional value is provided by the fact that fifth wave extensions are usually followed by rapid pullbacks. In this case, their appearance is an early warning of an impressive change in direction of movement to a certain level, a powerful set of knowledge. This instruction does not apply separately to wave extensions of fifth waves, which in turn are extensions in the fifth wave.

Figure 2-6 Figure 2-7