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Chapter 16, Part III. Major EW Patterns – Correction.

Discussion in 'Complete Trading Education- Forex Military School' started by Administrator, Sep 27, 2011.

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    Part III. Major EW Patterns – Correction. [​IMG]
    Commander in Pips: Since we’ve gone over Impulse motion of the market in EW theory, let’s also speak about correction. When the market has finished 5-wave pattern, the market should replace them with 3-wave correction move. All impulse moves are marked with numbers, while correction moves with letters. So, since market has completed a 5-wave trend, then, according to EW theory we should expect that it will turn towards a correction with a 3-wave countertrend.

    [​IMG]
    Check out these pictures:

    [​IMG]
    Pipruit: Looks like it works on bear market as well… Sir, and why are waves 2 and 4 mark with numbers, and not with letters –they are also some kind of retracement…
    Commander in Pips: Because letters are used for countertrend waves, while numbers for trend waves. Yes, 2 and 4 waves are retracements but they are inside the overall trend move. A, B and C are waves – standing not in this trend already but in the countertrend, so, they are marked with letters.

    So, In general there are 21 different types of corrective move, according to EW Theory. But don’t be scared – all of them could be divided in three major types – Zigzag, flat and triangle.

    Zigzag type

    [​IMG]

    Although here is corrective move after bull trend, this pattern looks absolutely similar for a correction after a bear trend as well, but with an upside direction. In general, Zigzag is a steep move against the previous trend. Wave B usually is the shortest in length compared to A and C. But as extensions could exist in impulse moves, so there could be some kind of them in corrective moves. Usually it looks like Zigzag repeats one by one twice or even three times. Other words 2 or even 3 Zigzags that linked together. Also take a look at second picture. Since we’ve said that EW are fractals – each wave in a Zigzag pattern could be broken in major 5-wave pattern but lower value. So, Zigzag is a most common pattern that is created by two motive waves (A and C), and one corrective wave, labeled B.

    Flat type

    This type usually happens, when market has shallow countertrend momentum. So it has not strongly directional move against the previous trend. Because of that each wave of ABC pattern countered each other and all of them relatively the same in terms on length:

    [​IMG]

    We’ve said “relatively equal in length”, because it not necessary for 100% so. It is possible that the end of B-wave will be slightly higher, than the beginning of A-wave, and the end of C-wave will be a bit lower then the start of B-wave etc. So, you should understand it in that way.

    Triangle type

    This type is a bit different from two previous ones, mostly by the structure of corrective move. Triangle type consists of 5 3-wave pattern, very similar to “Ending diagonal” in previous part of the current chapter. There could be descending, ascending triangles, as well as narrowing and broadening ones. As usual, you can more easily understand it by looking at the following picture:

    [​IMG]



    P.S. This lesson was written by Sive Morten, who has been working for a large European Bank since April of 2000, and is currently a supervisor of the bank's risk assessment department. Sive's knowledge of forex market and banking industry is vast and quite complete. If you have any specific questions about forex, banking industry, or any other financial instruments, please post them on the next page and Sive should answer soon.




    Note: FPA ranks are earned in the battles against scam, not in the classroom.
     
    #1 Administrator, Sep 27, 2011
    Lasted edited by : Apr 10, 2016
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