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Corrective wave

In Elliott Wave, a counter-trend move that usually unfolds in three legs labelled A, B and C, in forms such as zigzags, flats and triangles.

Corrections are where the theory becomes most flexible. The basic shapes are the zigzag, a sharp A-B-C; the flat, a sideways version where B returns near the start of A; and the triangle, a five-leg contraction that usually precedes the final move of a sequence.

There are also combinations, double and triple corrections that string these shapes together, which is the point at which the framework becomes very difficult to falsify. A correction that has gone on too long can always be relabelled as a combination.

The practical takeaway that survives regardless of the labelling is that corrections are choppier, more overlapping and more time-consuming than impulses. Recognising that a market is correcting rather than trending is useful even if you never count a wave.

Related: impulse-wave, elliott-wave-theory, consolidation, pullback, elliott-wave-criticism

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