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Simple Correction

In this aticle we will have a look at the most common structure of all the corrections that Elliott discussed the simple ABC zigzag correction. Though Elliott mentioned other corrective ABC structures, we are only looking for the most common ABC correction, namely the simple ABC zigzag correction.

There is only one pattern in a simple correction. This pattern is called a Zig-Zag correction. The simple ABC zigzag is made up of three waves. An important point to remember regarding this simple pattern is that the end of wave c will always exceed the end of wave a. To illustrate, let’s imagine that there is a bullish five wave sequence. Now it appears that we are going to enter a bearish corrective phase. At the end of the five wave sequence, there is a significant move down and we label this first wave as wave A. After wave A is complete, there is a bit of a rally, however this rally is short lived and does not exceed the beginning of wave A. This brief rally we will label as a wave B. After the completion of wave B, the market declines to such an extent that it exceeds the end of the wave A low.

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.

Simple Zig-Zag
The chart on the right shows a corrective wave when the trend of higher degree is bullish. The end of wave C could be one of the most important levels that we can identify. Why? If the corrective phase is complete at the end of wave C, that means that the market is about to enter an impulsive phase! So the question is, how can we identify the end of wave C?

R.N. Elliott appears to be the first trader to use Fibonacci numbers (more on this subject later) in the financial markets. He used them to help identify the completion of each wave. Each wave usually had a minimum, typical and maximum amount of movement to conform to Elliott’s Fibonacci standards. When it came to projecting the end of wave C, the typical projection would be when the length of wave C was equal to the length of wave A. In other words, the magic number when it comes to finding the end of wave C is the number one.

ABC Correction

Simple Zig-Zag A Zig-Zag correction is a three-wave pattern where the Wave B does not retrace more than 75 percent of Wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag correction always has a five-wave pattern. In the other two types of corrections (Flat and Irregular), Wave A has a three-wave pattern. Thus, if you can identify a five-wave pattern inside Wave A of any correction, you can then expect the correction to turn out as a Zig-Zag formation.
Wave B
Usually 50% of Wave A
Should not exceed 75% of Wave A
Wave C
Either 1 x Wave A
or 1.62 x Wave A
or 2.62 x Wave A

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