In Elliott Wave, there are several different corrective structures. Two of the most common corrective structures are zigzag ABC and double three WXY. A zigzag is a simple correction that all wavers is familiar with. The subdivision of ABC is 5-3-5, as the graph below illustrates.

ABC Zigzag Structure

Elltott Wave

The concept in Elliott Wave is simple. The main thesis is that trend moves in 5 waves called an impulse, while counter-trend moves in 3 waves. Thus in a bullish market, traders want to trade in the direction of the trend to the upside by buying a counter-trend pullback. To buy a pullback, traders need to wait for a clear 3 waves pullback such as a zigzag ABC above. In a typical ABC correction, wave C tends to end somewhere around 100% –" 161.8% Fibonacci extension of wave A. Wave C should not extend more than 161.8% relative to wave A otherwise the entire decline can become a 5 waves.

The reason is because wave 3 in an impulse is usually the strongest and the longest wave. In Fibonacci terms, wave 3 tends to be at least 161.8% extension of wave 1. Since the subdivision of wave 1 and wave 3 in an impulse is also in 5 waves, we do not know ahead of time if the decline will be ABC or 123. Traders can identify whether the decline is a beginning of a 5 waves impulse or an ABC is by looking at the third swing extension. If the third swing extends only to 100% of the first swing, then it’s an ABC zigzag. If the third swing extends to at least 161.8% of the first swing, then the odd increases that we are in an impulsive structure.

Traders who want to buy an ABC counter-trend move therefore can limit the risk at the 161.8% extension because below there, the entire decline can become impulsive and trend direction could change. Thus, traders who trade ABC pattern always have the risk that they are actually trying to buy a wave 3.

WXY Double Three Structure

Elliott Wave

Another type of corrective structure is a double three WXY, as the graph above illustrates. This is a complex correction involving two types of corrective structures. In the graph above, the first leg wave W and third leg wave Y are both zigzag. We can call this specific pattern a double zigzag. We can consider WXY as a 3-3-3 pattern. The first (W), second (X), and third leg (Y) all subdivide in 3 waves ((a))-((b))-((c)). In the simplest term, these are two zigzag corrections linked together in WXY. Despite the complex subdivision , this is essentially also a 3 swing correction labelled as WXY if we just focus on the main degree and not the subdivision.

Similar to ABC, wave Y also usually ends at 100% –" 161.8% Fibonacci extension relative to wave W. The third swing wave Y should not go below 161.8% extension of the first swing wave W. Otherwise, it increases the odd of further downside. A trader who wants to buy a corrective pattern WXY thus can try to buy wave Y at the 100% of wave W with stop loss below 161.8%. There is however a major difference in buying a WXY correction compared to ABC. In a WXY pattern, the first leg wave W already shows a clear 3 waves subdivision.

Thus, it has confirmed the structure to be corrective. In ABC pattern however, the first leg wave A is in 5 waves. If traders buy wave C at 100% of wave A, they run the risk that wave C can become a wave 3. If traders buy wave Y at 100% of wave W however, the chance that it will become wave 3 and breaks below 161.8% extension is smaller because the first leg wave W in this case subdivides in 3 waves. In an impulse, the first swing wave 1 must subdivide in 5 waves, similar to wave A in a zigzag. Thus, if wave W is in clear 3 waves, it reduces the risk that the decline becomes an impulse.

In summary, WXY is a better corrective pattern to trade than ABC. The pattern reduces the risk that the correction will become an impulse which is something that traders want to avoid.

FURTHER DISCLOSURES AND DISCLAIMER CONCERNING RISK, RESPONSIBILITY AND LIABILITY Trading in the Foreign Exchange market is a challenging opportunity where above average returns are available for educated and experienced investors who are willing to take above average risk. However, before deciding to participate in Foreign Exchange (FX) trading, you should carefully consider your investment objectives, level of xperience and risk appetite. Do not invest or trade capital you cannot afford to lose. EME PROCESSING AND CONSULTING, LLC, THEIR REPRESENTATIVES, AND ANYONE WORKING FOR OR WITHIN WWW.ELLIOTTWAVE- FORECAST.COM is not responsible for any loss from any form of distributed advice, signal, analysis, or content. Again, we fully DISCLOSE to the Subscriber base that the Service as a whole, the individual Parties, Representatives, or owners shall not be liable to any and all Subscribers for any losses or damages as a result of any action taken by the Subscriber from any trade idea or signal posted on the website(s) distributed through any form of social-media, email, the website, and/or any other electronic, written, verbal, or future form of communication . All analysis, trading signals, trading recommendations, all charts, communicated interpretations of the wave counts, and all content from any media form produced by www.Elliottwave-forecast.com and/or the Representatives are solely the opinions and best efforts of the respective author(s). In general Forex instruments are highly leveraged, and traders can lose some or all of their initial margin funds. All content provided by www.Elliottwave-forecast.com is expressed in good faith and is intended to help Subscribers succeed in the marketplace, but it is never guaranteed. There is no “holy grail” to trading or forecasting the market and we are wrong sometimes like everyone else. Please understand and accept the risk involved when making any trading and/or investment decision. UNDERSTAND that all the content we provide is protected through copyright of EME PROCESSING AND CONSULTING, LLC. It is illegal to disseminate in any form of communication any part or all of our proprietary information without specific authorization. UNDERSTAND that you also agree to not allow persons that are not PAID SUBSCRIBERS to view any of the content not released publicly. IF YOU ARE FOUND TO BE IN VIOLATION OF THESE RESTRICTIONS you or your firm (as the Subscriber) will be charged fully with no discount for one year subscription to our Premium Plus Plan at $1,799.88 for EACH person or firm who received any of our content illegally through the respected intermediary’s (Subscriber in violation of terms) channel(s) of communication.

Education feed Join Telegram

Editors’ Picks

EUR/USD: A downside break of an ascending triangle looks imminent at 1.0500

EUR/USD: A downside break of an ascending triangle looks imminent at 1.0500

The EUR/USD pair is juggling in a minor range of 1.0518-1.0531 in the early Tokyo session. The confluence of the Ascending Triangle formation and Inverted Flag has strengthened the greenback bulls.

EUR/USD News

GBP/USD approaches 1.2260 hurdle ahead of BOE/Fed leaders’ comments at ECB Forum

GBP/USD approaches 1.2260 hurdle ahead of BOE/Fed leaders’ comments at ECB Forum

GBP/USD portrays corrective pullback from weekly low, snaps two-day rebound. Mixed concerns ahead of key data/events join firmer UK second-tier statistics to underpin recovery moves. BOE’s Bailey has a tough task but Powell’s recent failure to please hawks keep pair buyers hopeful.

GBP/USD News

USD/JPY slips beneath 136.00 on upbeat Japan Retail Trade, softer yields, focus on Fed’s Powell

USD/JPY slips beneath 136.00 on upbeat Japan Retail Trade, softer yields, focus on Fed’s Powell

USD/JPY consolidates weekly gains during Wednesday’s sluggish Asian session, refreshing intraday low around 135.90 by the press time. In doing so, the yen pair snaps a three-day uptrend around a one-week high.

USD/JPY News

Editors’ Picks

AUD/USD jumps above 0.6900 as Aussie Retail Sales surprise positively

AUD/USD jumps above 0.6900 as Aussie Retail Sales surprise positively

AUD/USD is picking up fresh bids, jumping back above 0.6900, as the Australian Retail Sales surprise to the upside with 0.9% in May. The US dollar eases alongside yields amid persisting risk-off mood. Powell eyed. 

AUD/USD News

USD/JPY slips beneath 136.00 on upbeat Japan Retail Trade, softer yields, focus on Fed’s Powell

USD/JPY slips beneath 136.00 on upbeat Japan Retail Trade, softer yields, focus on Fed’s Powell

USD/JPY consolidates weekly gains during Wednesday’s sluggish Asian session, refreshing intraday low around 135.90 by the press time. In doing so, the yen pair snaps a three-day uptrend around a one-week high.

USD/JPY News

Gold eyes further downside towards $1,800, Fed Chair Powell in focus

Gold eyes further downside towards $1,800, Fed Chair Powell in focus

Gold Price remains on the back foot around $1,820, despite the recent bounce off intraday low. In doing so, the yellow metal prints a three-day downtrend as traders await the week’s key data/events amid a sluggish Asian session on Wednesday.

Gold News

Compound price: You won't believe how high COMP can rally

Compound price: You won't believe how high COMP can rally

Compound's COMP price could be a very favorable digital asset in the coming weeks. This article is meant to inform investors of data excluded on Tradingview's Binance, Coinbase and Kucoin exchanges for reasons that have yet to be explained. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology