Elliott Wave Pattern (Motive And Corrective Waves)
Elliott’s pattern consists of motive waves and corrective waves. A motive wave is composed of five subwaves and always moves in the same direction as the trend of the next larger size. A corrective wave is divided into three subwaves and it moves against the trend of the next larger size.
A picture above shows basic patterns build to form five and three-wave structures of increasingly larger size.
Waves (1), (2), (3), (4) and (5) together complete a larger impulsive sequence, labelled wave [1]. The impulsive structure of wave [1] tells us that the movement at the next larger degree of trend is also upward. It also warns us to expect a three-wave correction — in this case, a downtrend. That correction, wave [2], is then followed by waves [3], [4] and [5] to complete an impulsive sequence of the next larger degree, labelled as wave one. At that point, again, a three-wave correction of the same degree occurs, labelled as wave two.
Within a corrective wave, subwaves A and C are usually smaller-degree impulsive waves. This means they too move in the same direction as the next larger trend. Note that because they are impulsive, they themselves are made up of five subwaves. Waves labelled with a B, however, are corrective waves; they move in opposition to the trend of the next larger degree. These corrective waves are themselves made up of three subwaves.
Motive Waves (impulse wave and diagonal triangle)
We know two motive waves: impulse and diagonal triangle. Impulse is the most common motive wave.
Impulse wave
Impulse wave is structured by five subwaves in the direction of a stronger trend. The picture below shows a five wave move to the upside, meaning that price is in uptrend.
- wave 1 must be an impulse or a leading diagonal
- wave 2 can be any corrective pattern except a triangle
- wave 2 must not retrace more than 100% of wave 1
- wave 3 must be an Impulse
- wave 3 must be longer than wave 2
- wave 4 can be any corrective pattern (zig-zag, double or triple zig-zag, triangle, flat, double or triple three)
- wave 4 should never trade into a territory of a wave 1
- wave 5 must be an impulse or an ending diagonal
- wave 3 should never be the shortest wave when compared to waves 1 and 5
Most impulses contain what Elliott called an extension. An extension is an elongated impulse with exaggerated subdivisions. The vast majority of impulses contain an extension in one and only one of their three actionary subwaves.
The fact that extension typically occurs in only one actionary subwave provides a useful guide to the expected lengths of upcoming waves. For instance, if the first and third waves are about equal length, the fifth wave will likely be a protracted surge. Conversely, if wave three extends, the fifth should be simply constructed and resemble wave one. In the market, the most commonly extended wave is wave 3. Picture below shows extended third of a third.
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Diagonal Triangle
A Diagonal is a common 5-wave motive pattern labelled 1-2-3-4-5 that moves with the larger trend. Diagonals move within two contracting channel lines drawn from waves 1 to 3, and from waves 2 to 4. There are two types of diagonals: leading diagonals and ending diagonals. They have a different internal structure and are seen in different positions within the larger degree pattern. Ending diagonals are much more common than leading diagonals.
#1 Ending diagonal
An ending diagonal is a special type of pattern that occurs at times when the preceding move has gone too far too fast, as Elliott put it. A very small percentage of ending diagonals appear in the C wave position of A-B- C formations. In double or triple threes, they appear only as the final “C” wave. In all cases, they are found at the termination points of larger patterns, indicating exhaustion of the larger movement.
- structure is 3-3-3-3-3
- a wedge shape within two converging lines
- wave 4 must trade into a territory of a wave 1
- appears primarily in the fifth wave position, in the C wave position of A-B- C and in double or triple threes as the final “C” wave
#2 Leading Diagonal
When diagonal triangles occur in the fifth or C wave position, they take the 3-3-3-3-3 shape that Elliott described. However, it has recently come to light that a variation on this pattern occasionally appears in the first wave position of impulses and in the A wave position of zigzags. The characteristic overlapping of waves one and four and the convergence of boundary lines into a wedge shape remain as in the ending diagonal triangle. However, the subdivisions are different, tracing out a 5-3-5-3-5 pattern.
- structure is 5-3-5-3-5
- a wedge shape within two converging lines
- wave 4 must trade into a territory of a wave 1
- appears in the wave one position in an impulse, in the A wave position of A-B-C
Corrective Waves (zig-zag, flat, triangle,..)
Corrective patterns are labeled with letters, and move against the larger trend.
Zig-zag
A zig-zag is a 3-wave structure labeled A-B-C, generally moving counter to the larger trend. It is one of the most common corrective Elliott patterns.
Flat (regular, expanded, running)
A Flat is a three-wave pattern labeled A-B-C that generally moves sideways. It is corrective, counter-trend and is a very common Elliott pattern.
Regular Flat
- structure is 3-3-5
- wave B terminates about at the level of the beginning of wave A
- wave C terminates a slight bit past the end of wave A
- appears in wave two or four in an impulse, wave B in an A-B-C, wave X in a double or triple zig-zag, or wave Y in a triple threes
Expanded Flat
- structure is 3-3-5
- wave B moves beyond the start of wave A
- wave C ends more substantially beyond the ending level of wave A
- appears in wave two or four in an impulse, wave B in an A-B-C, wave X in a double or triple zig-zag, or wave Y in a triple threes
Running Flat
- structure is 3-3-5
- wave B terminates well beyond the beginning of wave A as in an expanded flat
- wave C fails to travel its full distance, falling short of the level at which wave A ended
- appears in wave two or four in an impulse, wave B in an A-B-C, wave X in a double or triple zig-zag, or wave Y in a triple threes
Combinations
Elliott called sideways combinations of corrective patterns double threes and triple threes. While a single three is any zig-zag or flat, a triangle is an allowable final component of such combinations and in this context is called a three. A double or triple three, then, is a combination of simpler types of corrections, including the various types of zig-zags, flats and triangles. Their occurrence appears to be the flat correction’s way of extending sideways action. As with double and triple zig-zags, each simple corrective pattern is labeled W, Y and Z. The reactionary waves, labeled X, can take the shape of any corrective pattern but are most commonly zig-zags. Below is example of most common complex correction; a double zigzag.
Triangle (Contracting, expanding)
A Triangle is a common 5-wave pattern labeled A-B-C-D-E that moves counter-trend and is corrective in nature. Triangles move within two channel lines drawn from waves A to C, and from waves B to D. A Triangle is either contracting or expanding depending on whether the channel lines are converging or expanding. Triangles are overlapping five wave affairs that subdivide 3-3-3-3-3.
