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With this video we continue Elliott waves looking at the rules and application of the greater variety of correction waves.
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Hallo, Sylvain Vervoort with technical analysis part 22. With this video we continue Elliott waves looking at the rules and application of correction waves. Pay a visit to my website at stocata dot org and buy my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system.
Let me first sum up a few important things about correction waves:
The zigzag pattern is the most common correction structure. A zigzag can consist of one zigzag, a double zigzag, or, rarely, a triple zigzag. The zigzag belongs to the family of sharp corrections.
A simple zigzag pattern has three waves. A double zigzag pattern has seven waves, meaning two simple zigzags separated by an X wave. A triple zigzag has 11 waves with two X waves.
Example of a simple zigzag correction with a lower degree extension zigzag correction in wave C.
To denote a double zigzag we use WXY instead of the standard ABCXABC Elliott notation. For the triple zigzag, this becomes WXYX²Z. This is a more consistent way of notation because more zigzags of a lower order (ABC) are connected together by a higher order wave (XYZ).
Example of a double WXY zigzag correction with two ABC zigzags connected via the X wave and with a lower degree extension in the first C-wave.
Flat corrections are very common. Note that waves A and B of a flat correction are both three-wave correction patterns. Wave C is an impulse pattern and usually does not pass much farther than the end of wave A. Flat corrections mostly can be found in B waves, but they appear also in waves 2 and 4.
Pay attention to an extended flat correction. Here waves B and C move past wave A.
In a broken flat correction on the other hand, only wave A is passed by wave B, but wave B is still a correction pattern, not an impulse wave.
Just like with the zigzag, we have flat correction variants with a double and a triple flat correction. A double flat correction is quite common, but a triple flat correction is rare.
A double flat correction is composed of two flat corrections connected via a correction pattern.
A triple flat correction is composed of three flat corrections connected via correction patterns.
We use WXY to denote a double flat correction, instead of the standard ABCXABC Elliott notation.
This is a more consistent way of notation because more flat corrections of a lower order (ABC) are connected together by a higher order wave (XYZ). In a double flat correction we see that:
A triangle correction pattern has the form of a triangle. The triangle is a correction pattern consisting of five waves identified with the letters ABCDE. The triangle is drawn between the points AC and BD. A triangle will not be found in any type 2 wave, in a flat B correction wave, or in double or triple flat correction waves W, X, and X². All waves within a triangle pattern are correction waves. Wave E will, in some cases, penetrate the AC line.
In the normal triangles we have the three types: symmetrical, as in the previous picture and falling or rising triangles.
The inverted widening triangle only exists in a symmetrical version. An inverted widening triangle is a rather rare.
A triangle with a correction zigzag wave in each of the 5 legs A to E, makes a rather complex reaction as you can see in this example with a falling triangle in an uptrend reaction.
Trend channels are an important tool to see which waves belong together. Trend channels can be used to project price targets. Trend channels are parallel lines that capture the price move of a wave pattern. Most of the time Elliot waves of the same order can be isolated using trend channels. This is the case for impulse waves, zigzag correction waves, and triangles. If these patterns are not moving within a trend channel, it is likely that the Elliott count is wrong.
This is the end of the Elliott correction waves part. We still have to talk about Elliott waves price targets, however before that we first have a look at Fibonacci projections and retracements. We will use this knowledge for predicting Elliott price targets. Tell your friends about these videos and while visiting my website you should order my new book “Capturing Profit with Technical Analysis”, a complete technical analysis reference and a winning trading system. See you in my next video!
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