Module 3 Corrective Patterns

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By now, we have completed Module 1 Elliott Basics and Module 2 Impulsive
Patterns.
In this learning object, we will learn about:
Corrective Wave Structure
Characteristics of Zigzags, Flats, Triangles, and Combinations
Rules and Guidelines of Corrective Waves

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Let’s review what we have learned in the previous two modules. In Module 1, we
learned about counting waves and we talked about wave personalities. We have a
good idea about the rhythm of the Elliott waves as well.

In Module 2, we focused on the impulsive wave structures such as the impulse

waves and the diagonals. We also learned about wave extensions of the impulse
waves.

In this Module, we will look at corrective moves and continuation chart patterns.
Once we learn to identify certain types of chart patterns such as triangles and bull
and bear flags, we will begin to identify with how the market moves during these
sequences and be prepared for the next impulsive move.

How would you like to be able to recognize when the market has finished correcting,
and is ready to make its next big move in the direction of the trend?

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Anais Nin, writer and diarist from Paris said, “And the day came when the risk it took
to remain tight inside the bud was more painful than the risk it took to blossom.”
Congratulations for taking the risk to learn skills required to become an intuitive
master trader. Not everyone is ready for this step but you are, because you are
here, now. The key to doing well in the market is to use the tools available to know
when the next trend is about to start. We learn that by understanding how to apply
corrective sequences.

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The Elliott Wave Principle attempts to provide order to the markets by providing a
framework within which market moves occur.

Corrective wave structures follow any 5-wave move. Corrective waves can follow a
wave 1, 3 or 5 and are usually denoted with letters. One certainty about corrective
waves is that they always trade in 3-wave patterns, with the exception of a triangle.

Usually, at the end of a wave 1, 3, or 5, the market is still bullish in the case of an
uptrend. The corrective sequence as an ABC is a correction only, and is a way to
position oneself to buy dips, especially after the completion of a wave 1 or 3.

In the case of a downtrend, the reverse is true. One would get ready to sell the rally.

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One word of caution. After a 5-wave sequence, Wave B of this 3-wave correction is
what is known as the Bull trap in an ABC corrective sequence. At this point, traders
are euphoric about going long in the market again, not realizing that Wave C is
about to follow.

This is a good time to position short for wave C.

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Wave C wipes out the long positions as price drops relentlessly.
It is often an extended wave but when it ends, it ends, and then it is time to buy.

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Let’s begin delving into this ABC corrective sequence a bit further.

Corrective patterns are divided into 2 types:

Sharp – corrections that move sharply against the major trend, and
Sideways – corrections that move against the major trend in a sideways
movement.

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There are 3 types of corrective patterns – zigzags, flats and triangles.

Zigzags are characterized as simple, sharp corrections.

Flats are characterized as simple, sideways corrections. There are 3 variations.

Triangles are also described as simple sideways corrections. There are 4 variations.

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Notice the simple sharp correction of the zigzag.

Notice the sideways movement of the flat.

Notice the sideways 5 leg sequence of the triangle.

How would you like to be able to identify these patterns in the market as they are
unfolding?

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In an uptrend or a downtrend, the zigzag correction moves against the predominate
trend.
Zigzags are considered to be part of the sharp family because the A wave trades
against the trend, followed by a B wave which corrects A, and a final C wave which
travels against the trend.

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INTERNAL STRUCTURE OF ZIGZAGS

The zigzag has a 3-wave A-B-C form

where A and C are both 5-wave forms
separated by B, a 3-wave form
This corrective sequence trades as an Impulsive-Corrective-Impulsive sequence.

Wave A trades against the trend, wave B trades with the trend, and C trades against
the trend.
The zigzag typically occurs in the wave 2 position as the market is still unaware that
the trend has changed, and the correction is sharp, correcting most of the wave 1
move.

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In an uptrend or downtrend, the flat correction moves sideways to the predominant
trend.
Flats are part of the sideways family of corrective wave patterns.
Flats fall into 3 categories:
Regular flat
Irregular or expanded
Running flat

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In flat corrections, the regular flat is the most common, followed by the irregular or
expanded, followed by the running flat.

Subtle differences between the travel of waves B and C determine which flat
correction it is.

For example, the regular flat is the most common, with B traveling back to the start
of A, followed by the C wave which usually comes slightly below the end of wave A.

In an irregular or expanded flat, B always travels above the start of wave A.

In a Running flat, the trend is so strong, that C doesn’t make it below the end of
wave A. The market is too ready to take off in the direction of the trend which in this
case, is up.

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INTERNAL STRUCTURE OF FLATS

The Flat has a 3-wave A-B-C form

where A and B are both 3-wave forms
C is a 5-wave form
This corrective sequence trades as a Corrective-Corrective-Impulsive sequence.

Notice that the wave A in a zigzag is 5 waves but the wave A in a flat correction is
only 3 waves.

The Flat correction typically occurs in the wave 4 position and is more of a sideways
consolidation than a sharp correction, as the market looks for more strength in the
wave 5 which follows.

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Characteristics of Triangles
In an uptrend or a downtrend, triangles are sideways patterns that move within
either converging or diverging channel lines.

The example to the left shows converging channel lines in a downtrend market.

Triangles are 5-wave structures in an A-B-C-D-E form that move against the trend in
a corrective sideways manner.

Triangles fall into 4 categories:

Contracting
Symmetrical
Ascending
Descending
Expanding
Reverse symmetrical

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These are the four variations of triangles.

Triangles usually occur in 4th wave positions and are considered sideways
consolidation patterns. They are also called continuation patterns as they precede
the final move in the direction of the current trend.

Notice the difference between the symmetrical and reverse symmetrical triangle.
The symmetrical triangle moves within converging channel lines. The reverse
symmetrical triangle moves within diverging channel lines.

Notice the difference between the ascending and the descending triangle. The
ascending triangle moves within converging channel lines with a flat top and upward
sloping bottom. The descending triangle moves within converging channel lines with
a flat bottom and downward sloping top.

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INTERNAL STRUCTURE OF TRIANGLES

The Triangle has a 5-wave A-B-C-D-E form

Where each of A, B, C, D and E legs are 3-wave forms
This corrective sequence trades as a Corrective-Corrective-Corrective-Corrective-
Corrective sequence.

Triangles usually occur in 4th wave positions and are considered sideways
consolidation patterns.
They are also continuation patterns as they precede the final move in the direction
of the current trend.

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To summarize,

A Zigzag forms a sharp 3-wave ABC corrective move.

The Flat family is characterized as a simple sideways with a 3-wave ABC corrective
move. It has 3 variations – regular, irregular, or running, with the B and C leg
varying with each variation.

The Triangle family is characterized as a simple sideways correction which unfolds

in a 5-wave ABCDE sequence. There are 4 types: symmetrical, which is
contracting, reverse symmetrical, which is expanding, ascending, which has a flat
top and a rising bottom, and a descending, which has a declining top and a flat
bottom.

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The fourth type of corrective sequence forms a combination of the basic corrective
structures.

For example,
Sharp (zigzag) corrections can be single, double, or triple patterns
A Double zigzag is 2 zigzag patterns linked together
A Triple zigzag is 3 zigzag patterns linked together

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The Double Zigzag moves sharply against the trend.
It forms a W-X-Y form where both W and Y are zigzags and X is the link

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The Triple Zigzag also moves sharply against trend.
It is 3 zigzag patterns linked together.
It forms a W-X-Y-X-Z form where W, Y and Z are zigzags and X is the link

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A second combined pattern combines the flat sideways family of corrections.

These Sideways corrections can unfold as double threes or triple threes.

A Double three is 2 corrective patterns linked together by a third corrective
pattern (X). It occurs in both rising and falling markets
A Triple three is 3 corrective patterns linked together by two corrective
patterns (X). It occurs in both rising and falling markets

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Let’s review the Double Three.
The Double Three moves sideways against trend
It forms a W-X-Y form where both W and Y are linked by X.
In this example, W is an A-B-C zigzag and Y is an A-B-C flat.

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The Internal Structure of Double Threes.

In an uptrend or downtrend, double threes move sideways before resumption of the

predominant trend.
It consists of 2 corrective patterns (W and Y) linked together by a third corrective
pattern X.

The WXY is Corrective-Corrective-Corrective, where (W) unfolds in three waves, (X)

unfolds in three waves, and (Y) unfolds in three waves.

In this example, W is an A-B-C zigzag and Y is an A-B-C flat. The (X) link or
connector is an ABC zigzag.

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This is an example of a Triple three with 3 different corrective patterns linked
together with X’s.
It moves sideways against trend.
It forms in a W-X-Y-X-Z form where W, Y and Z are all linked by X.
In this example, W is an A-B-C zigzag, Y is an A-B-C flat, and Z is an A-B-C-D-E
triangle.

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In an uptrend or downtrend, triple threes move sideways before resumption of
predominant trend. It is far less common than double threes.

Consists of 3 corrective patterns (W, Y and Z) linked together by a third corrective

pattern X.

The internal structure is W-X-Y-X-Z is corrective-corrective-corrective-corrective-

corrective.

Example: W is an A-B-C zigzag, Y is an A-B-C flat, and Z is an A-B-C-D-E

triangle.

All three patterns are connected by the X leg, which is also a 3-wave pattern.

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This is a summary of the zigzag double and triple threes and flat double and triple threes.

A triangle can never begin a combination pattern, only a zigzag and a flat can.

Possible (zigzag) double three combinations are:

-Zigzag-Zigzag
-Zigzag-Flat, and
-Zigzag-Triangle
Possible flat double three combinations are:
-Flat-Flat
-Flat-Zigzag, and
-Flat-Triangle
Possible zigzag triple three combinations are:
-Zigzag-Zigzag-Zigzag
-Zigzag-Flat-Flat
-Zigzag-Flat-Triangle
Possible flat triple three combinations are:
-Flat-Flat-Flat
-Flat-Flat-Zigzag
-Flat-Flat-Triangle
-Flat-Zigzag-Flat
-Flat-Zigzag-Triangle
This is a good chart to keep in front of you when you are looking at corrective patterns. If a
corrective pattern seems to go on and on, it is because of these combinations.

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Triangles do occur in combinations. However, they always end the final wave in a
double or a triple three.

Also, there is never more than one triangle in a combination.

These are examples of where triangles occur in combinations. A zigzag double

three can start with a zigzag and end with a triangle. A flat double three can start
with a flat and end with a triangle.

A zigzag triple three can have a zigzag, flat, triangle combination.

A flat triple three can form a flat, flat, triangle, or a flat, zigzag, triangle.

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To summarize about triangles, triangles are always the final wave in double or triple
threes.
So for example, the Y position in a double three or the Z position in a triple three.
There is never more than 1 triangle in a combination.
A triangle occurs in wave 4 prior to wave 5 impulse move.
A triangle occurs in wave B prior to final wave C.
Complex triangles can occur in wave E of a 9-wave form

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Identifying and fitting corrections into particular patterns in advance is extremely
difficult. This is because corrective waves have more variations than impulsive
waves. Often a corrective pattern becomes apparent in retrospect, after the fact.
But there is one guideline that is very helpful in anticipating corrective action. And
that is the concept of Alternation.

The Guideline of Alternation states that if wave 2 is a simple sharp correction, a

zigzag, THEN…

Wave 4 will be a simple sideways (flat, irregular flat, or triangle) or a complex

sideways correction with combined patterns (such as double or triple threes.)

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Alternation also applies to the ABC legs themselves in corrective waves:

For example, the B leg in a zigzag can be a zigzag itself, as in this diagram. Or, the
B leg can be a flat or a triangle.

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The B leg in a zigzag can even be a double or triple three!

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Alternation in Corrective Waves.
We spoke about alternation between waves 2 and 4 in an impulsive 5-wave move up or
down. Recall if Wave 2 is simple and sharp, then wave 4 will be complex and sideways.
Alternation also applies to the ABC legs in Corrective Waves. Alternation can apply in any
ABC sequence, and it can also apply in an ABCDE triangle situation.
Let’s take an example of an ABC corrective sequence in a wave 4. An ABC can be a 5-3-5
sequence like in example 1: A is a 5-wave sequence, B is three waves in an ABC flat, and
C is a 5-wave sequence. In example 2, A is a 5-wave sequence, B is a triangle, and C is a
5-wave sequence. Both patterns would look like the ABC zigzag pattern.
Example 3 is a little bit more complex. A forms an ABC zigzag so in itself, it looks like the
correction is done. Right? ABC 535 correction – it looks done. One would expect at this
point for wave 5 to follow. But what you see instead is another correction in the form of an
ABC flat. That forms the B, followed by the 5-wave C leg.
Example 4 is an ABC correction with a zigzag, followed by a triangle, followed by a wave C.
Notice that most of the time the wave C is a 5-wave impulse wave known as the killer wave,
with the same characteristics as wave 3.
Example 5 begins with a flat ABC pattern followed by a zigzag followed by a wave C. This
would look like a complex sideways pattern rather than a zigzag.
Example 6 is a double 3 combination. Wave A starts off with 5 waves, Wave B is a double 3
with a flat and a triangle and wave C is 5 waves. Don’t forget that within the triangle itself,
there can be alternation. Also, in the double 3 combination, the x wave connector can also
be a combination of flats, zigzags and triangles.

This is the summary slide. Notice from this slide that this list is not exhaustive. In other
words, there are more patterns that can be substituted. Just keep an open mind that not all
corrective sequences will be a simple ABC three wave sequence. For example, combined
zigzag patterns are often found in the wave A position. Combined patterns with a triangle at
the end are usually found in the wave B position. What do all of these combinations have in
common? What are the 4 patterns that repeat themselves over and over again in these
corrections?

You would be correct if you said zigzags, flats, triangles, and combinations.
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Here is a summary slide for Rules and Guidelines of Corrective Waves.
First we’ll do the Zigzag rules.
Zigzag unfolds into 3 waves:
- Wave A subdivides into an impulse wave or a leading diagonal.
- Wave B subdivides into a zigzag, flat, triangle, or combination pattern.
- Wave C subdivides into an impulse wave or ending diagonal.
Wave B never moves beyond the beginning of wave A.
The Internal structure is impulsive-corrective-impulsive.

And now on to the Flat rules:

The Flat unfolds into 3 waves:
- Wave A is never a triangle.
- Wave C subdivides into an impulse wave or an ending diagonal.
- Wave B always retraces at least 90% of wave A
And the internal structure is corrective-corrective-impulsive.

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And now a summary slide of the Rules and Guidelines of Corrective Waves.
Triangle Rules and Combination Rules.
First the Triangle Rules:
- Triangle always subdivides into 5 waves

- At least 4 of the A-B-C-D-E waves unfold into a zigzag or zigzag combination.

- A line connecting the ends of waves B and D converges with a line connecting the ends of
waves A and C.

- A triangle never has more than 1 complex sub-wave.

- The complex sub-wave is always a zigzag combination or a triangle.

And now for the Combination Rules:

- Combinations are double or triple threes connected by a third wave X in the opposite
direction forming a W-X-Y or a W-X-Y-X-Z pattern.

- A double or triple zigzag consists of 2 or 3 zigzags connected by the X wave.

- A double three flat correction consists of a zigzag-flat, flat-zigzag, flat-flat, zigzag-triangle,

or flat-triangle.

- Double and triple three corrections take the place of flats and triangles.
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This is the conclusion of the Learning Object in this Module. Please continue on to
the Quiz.

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1. b)
2. b)

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3. b)
4. a)

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5. c) e)
6. e)

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7. d)
8. a)

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9. d)
10. a) b) c) e)

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11. e)

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