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Grade 1 Support and Resistance Levels
Grade 2 Japanese Candlesticks
Grade 3 Fibonacci
Grade 4 Moving Averages
Grade 5 Common Chart Indicators
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Grade 7 Important Chart Patterns
Grade 8 Pivot Points
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Grade 9 Trading Divergences
Grade 10 Market Environment
Grade 11 Trading Breakouts and Fakeouts
Grade 12 Fundamental Analysis
Grade 13 Currency Crosses
- What is a Currency Cross Pair?
- Crosses Present More Trading Opportunities
- Cleaner Trends and Ranges
- Taking Advantage of Interest Rate Differential
- Obscure Crosses
- Planning Around News and Fundamentals
- Creating Synthetic Pairs
- Euro and Yen Crosses
- How to Use Crosses to Trade the Majors
- How Cross Currency Pairs Affect Dollar Pairs
- Summary: Currency Crosses
Grade 14 Multiple Time Frame Analysis
Undergraduate>= Lesson Status ?
- Why Keep a Trade Journal?
- Benefits of Keeping a Journal
- What Should You Record in Your Journal?
- Potential Trading Area
- Entry Trigger
- Position Sizing
- Trade Management Rules
- Trade Retrospective
- Trading Journal Statistics
- Reviewing Your Trading Journal
- Difficulties of Keeping a Trade Journal
- Summary: Keeping a Trade Journal
Graduation>= Lesson Status ?
- Which Trading Style is Best for You?
- Which Currencies Should You Trade?
- What is Your Level of Trading Experience?
- Should You Be a Discretionary, Mechanical, or Hybrid Trader?
- What Kind of Mechanical System Suits Your Personality?
- What is Your Attitude Towards Risk?
- What Kind of Stop Suits Your Trading Style?
The 5-wave trends are then corrected and reversed by 3-wave countertrends. Letters are used instead of numbers to track the correction. Check out this example of a smokin' hot corrective 3-wave pattern!
Just because we've been using a bull market as my primary example doesn't mean the Elliott Wave Theory doesn't work on bear markets. The same 5-3 wave pattern can look like this:
Types of Corrective Wave Patterns
According to Elliott, there are 21 corrective ABC patterns ranging from simple to complex.
"Uh 21? I can't memorize all of that! The basics of the Elliott Wave Theory are already mind-blowing!"
Take it easy, young padawan. The great thing about Elliott Wave is you don't have to be above the legal drinking age to trade it! You don't have to get a fake ID or memorize all 21 types of corrective ABC patterns because they are just made up of three very simple easy-to-understand formations.
Let's take a look at these three formations. The examples below apply to uptrends, but you can just invert them if you're dealing with a downtrend.
The Zig-Zag Formation
Zig-zag formations are very steep moves in price that goes against the predominant trend. Wave B is typically shortest in length compared to Waves A and C. These zig-zag patterns can happen twice or even thrice in a correction (2 to 3 zig-zag patterns linked together). Like with all waves, each of the waves in zig-zag patterns could be broken up into 5-wave patterns.
The Flat Formation
Flat formations are simple sideways corrective waves. In flats, the lengths of the waves are GENERALLY equal in length, with wave B reversing wave A's move and wave C undoing wave B's move. We say generally because wave B can sometimes go beyond the beginning of wave A.
The Triangle Formation
Triangle formations are corrective patterns that are bound by either converging or diverging trend lines. Triangles are made up of 5-waves that move against the trend in a sideways fashion. These triangles can be symmetrical, descending, ascending, or expanding.
Drop by our forums if you want to see the bullish and bearish versions of these Elliott Wave patterns.
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- Elliott Wave Theory
- The 5 - 3 Wave Patterns
- ABC Correction
- Waves Within a Wave
- The 3 Cardinal Rules and Some Guidelines
- Riding Elliott's Waves
- Summary: Elliott Wave Theory