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Welcome to the third lesson in our module on Elliott Wave Theory. In this lesson we will look at Corrective Waves and the various types of corrective waves. We will also look at the characteristics of corrective waves and how the various subwaves of a corrective wave relate to each other.

What are Corrective Waves?

Corrective Waves represent countertrend interruptions of the current trend and are referred to as "corrective" as they appear as a correction in the trend that only accomplishes a partial retracement of the previous wave. Any countertrend movement is characterized by a great struggle as the larger, more established trend has more significance and support than the nascent countertrend movement. As a result, corrective waves are more varied than motive waves and are much harder to identify and label in real time.

There is one important rule for Corrective Waves: they never form five wave patterns. Only impulse waves form a five wave pattern. However, one or more of the subordinate waves of a corrective wave can consist of a five wave pattern, though this is not a rule as we will soon see when discussing the different types of corrections.

Types of Corrective Waves

Although Corrective Waves can either form a sharp correction or a shallower, sideways correction, they can be categorized into three types, or three different wave patterns. These are: zigzag waves, flat waves, and diagonal triangles. Corrective Waves can also consist of a combination of these wave patterns.

Zigzag Corrections

A Zigzag Correction

A Zigzag Correction is a sharp correction and consists of a three wave pattern that is labelled A-B-C. These wave patterns usually appear in the Wave 2 position but do occur occasionally in the Wave 4 position. The subordinate waves of a lesser degree that make up a Zigzag Correction form a 5-3-5 wave count. In these corrections, waves A and C are motive waves of a lesser degree and Wave B is a corrective wave also of a lesser degree.

Zigzag Correction Characteristics

• Wave A is part of a basing process for the next price movement against the direction of the larger trend. It is a motive wave with five subordinate waves that can be either a sharp impulse wave or a shallower diagonal.
• Wave B is a corrective subwave and can be any type of corrective wave. Wave B usually retraces to the 50.0%, 61.8%, 78.6%, or 85.4% Fibonacci Retracement level of Wave A.
• Wave C is a motive wave with five subordinate waves that can be either a sharp impulse wave or a shallower diagonal. Wave C is usually a 61.8%, 100.0%, or 123.6% Fibonacci Projection level of Wave A.

Double and Triple Zigzag Corrections

A Zigzag Correction can extend to form a double zigzag or a triple zigzag with each zigzag being separated by an intervening corrective wave that has three subordinate waves and is labelled X. Thus, a double zigzag will form a A-B-C-X-A-B-C wave count, while a triple zigzag will form a A-B-C-X-A-B-C-X-A-B-C wave count. Some technical analysts label the first zigzag as W, the second zigzag as Y, and the third zigzag as Z, creating a W-X-Y wave count for a double zigzag, and a W-X-Y-X-Z wave count for a triple zigzag.

You can often anticipate the formation of a double zigzag when the Corrective Wave is a Zigzag Correction and Wave C of that zigzag appears to fall short of its normal target. This, however, is not a hard rule.

Flat Corrections

A Flat Correction

Flat Corrections also consist of a three wave pattern that is labelled A-B-C but its subordinate waves form a 3-3-5 wave count. A characteristic of Flat Corrections is that they are weak corrections with the Wave C of a Flat Correction often failing to exceed the length of its Wave A. Here, length is a measure of price movement and not a measure of time. Flat corrections often follow a strong impulse wave and occur more often in the Wave 4 position rather than the Wave 2 position.

There are three types of Flat corrections: regular flat corrections, expanded flat corrections and running flat corrections.

Regular Flat Corrections

In a Regular Flat Correction, Wave A and Wave B have three subwaves that can form any of the Corrective Wave patterns, while Wave C has five subwaves and can be either an impulse wave or a diagonal.

Wave B of a Regular Flat Correction tends to be a 90% to 100% retracement of Wave A, and Wave C tends to retrace to the 61.8%, 100.0%, or 123.6% Fibonacci Retracement level of Wave B.

The termination of Wave C is often accompanied by divergence between the price action and a momentum indicator.

Expanded Flat Corrections

Expanded Flat Corrections are also referred to as Irregular Flat Corrections but are far more common than Regular Flat Corrections. The structure of an Expanded Flat Correction is the same as a Regular Flat Correction with its subwaves having a 3-3-5 wave count with Wave A and Wave B forming any of the Corrective Wave patterns, while Wave C can be either an impulse wave or a diagonal. The difference between an Expanded Flat Correction and a Regular Flat Correction is that the Expanded Flat Correction forms the shape of a megaphone or an expanding triangle .

Wave B of an Expanded Flat Correction tends to retrace to the 123.6% Fibonacci Retracement level of Wave A while Wave C can retrace to between the 123.6% and 161.8% Fibonacci Retracement levels of Wave B.

As with a Regular Flat Correction, the termination of Wave C of an Expanded Flat Correction is often accompanied by divergence between the price action and a momentum indicator.

Running Flat Corrections

Running Flat Corrections are very rare and are similar in structure to Expanded Flat Corrections with the exception that Wave C in a Running Flat Correction does not retrace beyond the start of Wave B.

As with an Expanded Flat Correction, Wave B of a Running Flat tends to retrace to the 123.6% Fibonacci Retracement level of Wave A while Wave C retraces to between the 61.8% and 100.0% Fibonacci Retracement levels of Wave B.

As with a Regular Flat Correction and an Expanded Flat Correction, the termination of Wave C of a Running Flat Correction is often accompanied by divergence between the price action and a momentum indicator.

Triangle Corrections

A Triangle Correction

Triangle Corrections consist of five waves labelled A-B-C-D-E with the subordinate waves forming a 3-3-3-3-3 wave pattern. They reflect a momentary balance of forces between bulls and bears and is often accompanied by decreasing volume and volatility. In Elliott Wave Theory, there are 4 types of triangles: ascending triangles, descending triangles, contracting triangles, and expanding triangles.

In an ideal Triangle Correction, each successive wave will fall short of a 100% retracement of the previous wave. However, it is not uncommon to have wave B exceed the start of Wave A. Sometimes an expanded triangle is formed when each successive wave is more than a 100% retracement of the previous wave. The triangle is formed by connecting the end point of waves A and C and the ends points of waves B and D. Triangles always occur as the Wave 4 position of an motive wave, where it is usually followed by a short, swift fifth wave that travels the approximate distance of the widest part of the triangle, or the Wave C position of a corrective wave.

Combination Corrections

A Combination Correction consisting of a Zigzag,
an Intervening Three, and a Running Flat

Combination Corrections are usually horizontal corrections that form combinations of simpler three wave corrections, such as zigzag corrections, flat corrections and triangle corrections. The only rule is that a Combination Correction can end in a triangle correction but it cannot start with one. In other words, a Combination Correction can start with a zigzag correction or one of the flat corrections but it cannot start with a triangle correction.

Each of the simpler corrective patterns that make up a Combination Correction is separated by an intervening corrective wave that has three subordinate waves and is labelled X. Combination corrections occur more often in the Wave 4 position.