Chapter 3 Glossary:
3.2 , Expanded Flat
3.3 Running Flat, Contracting Flat
3.4 Barrier Triangle, Expanded Triangle
We have to understand that markets also move against the trend of one greater degree only with struggle due to intraday traders. This is why Waves is another technique to organize the chaos within the market, as two forces are pulling in each direction regardless of how we want it to move. Let's talk about the MAIN important note for correction waves - they never have five waves. If they do, they are only a motive part of the overall corrective pattern. It's that simple. Corrections can be classified into two different classes of styles. There are the sharp corrections, which move sharply against the major trend. Their angle is rather steep. On the other hand are sideways corrections, they don’t retrace much in price, but can take a long time to finish.
Apart from the two styles are in general three correction pattern:
• Zig-Zag (5-3-5)
• Flat (3-3-5) (regular, expanded, running)
• Triangle (3-3-3-3-3) (contracting, barrier, expanding and running)
Combination of these pattern form either a double three or triple three correction. These prolonged corrections are separated by a wave X. All of these will be discussed in the following chapters.
A single is a simple three-waved corrective movement which is labelled as an wave. It’s structure is 5-3-5, and the top of wave B is noticeably lower than the start of wave A as shown above. There are rules to this. If you are still not sure of what we are talking about, you need to go back and review chapter 2.
• Wave A has to be a motive or diagonal
• Wave B can only be a corrective pattern
• Wave B has to be shorter than Wave A
• Wave C has to be an impulse or along the way
This is the most common corrective pattern in Theory and is usually a sharp correction within a descending structure. For those not able to see it from an perspective, most traders can identify this pattern as a continuation pattern. But the chaotic movements inside can be organized via Waves.
The length of wave C is between 100%-161.8% of wave A.
corrections appear most of the time as a wave 2 only, but are also very common as a connective wave in more complex corrections like a double as shown above! Occasionally corrections will occur in two, sometimes even three times in a row. This happens usually when the first does not correct far enough from a price action perspective.
❗If a double occurs, the single ZigZags are separated by a three-waved reactionary move, which is labelled as Wave X and is always corrective on the way down.
Note: corrections often fit into a parallel channel! It is drawn between the highs of wave A & B to determine the end of wave C.
So what is useful? Currently I use simple moving averages on stock market indexes typically the S&P 500, check relative strength of a basket of ETFs and use ETF rotation. This is working well for now that could very well change.
Who am I ? Just regular guy who has had his fill of self proclaimed Financial gurus and experts that promise much and always under deliver. Do your own work take charge of your investments there is no magic formula.
Its not perfect but I don't spend huge hours or time researching or trading individual stocks. I only trade a few times a year. If I can prevent myself from riding the market all the way down and catch most of the next bull run I'm good with that.
Nonsense: "very consistent...79% win rate for the last 3 months"
More accurate: "21% losing trades over the last three months"
21% losers. Unacceptable. And entirely avoidable. No technical spit and chicken feet technical indicator sophistry required.
I would suggest that any system that difficult to master cannot reliably be used even those that profess to be experts. I personally embrace the KISS principle.
If it works for you more power to you. Ride the wave!