After a five-wave impulse, the market enters a three-wave correction labeled A-B-C. Corrective waves move against the larger trend and take many forms: zigzags (sharp A-B-C), flats (sideways A-B-C), and triangles (contracting A-B-C-D-E). Corrections are always three-wave structures (or combinations of threes). Identifying correction completion signals the next impulse wave entry.
Three-wave counter-trend structure, Zigzag: sharp correction (A = impulse, B = corrective, C = impulse). Same direction as A. Flat: sideways correction (B retraces most of A, C ≈ A in length), Expanded flat: B exceeds the start of A, C exceeds the end of A. Triangle: five-wave contracting pattern (A-B-C-D-E). Complex corrections: combinations of the above.
Trade the end of Wave C for a new impulse entry, Wave C completion at Fibonacci levels (1.0× A for zigzags, 1.272-1.618× A for expanded flats), Zigzag end at 0.618 retracement of the prior impulse, Triangle Wave E completion for next impulse entry
Target the start of the next impulse wave (minimum Wave 1 equivalent), Stop below Wave C extreme, Time-based: if price consolidates horizontally for an extended period after Wave C, expect the triangle variant
Daily/Weekly for corrective analysis. 4H for Wave C completion entry.
Corrections are harder to trade than impulse waves because of their complex, overlapping nature. Many experienced Elliott Wave traders wait for corrections to complete and then trade the next impulse wave, rather than trying to trade within the correction.
Fibonacci ratios are central to Elliott Wave — they define where waves are likely to end and project targets for the next wave. Key retracement levels (0.382, 0.5, 0.618, 0.786) identify where pullback waves (2, 4, B) are likely to end. Extension levels (1.272, 1.618, 2.618) project where motive waves (3, 5, C) are likely to reach.
The impulse wave pattern consists of five waves in the direction of the larger trend: three motive waves (1, 3, 5) separated by two corrective waves (2, 4). This is the core structure of Elliott Wave Theory. Wave 3 is typically the longest and most powerful, never the shortest. Wave rules: Wave 2 cannot retrace beyond the start of Wave 1. Wave 4 cannot overlap with Wave 1 territory (except in diagonals).
Each Elliott Wave position carries a distinct psychological character that reflects the emotions and behaviour of market participants during that phase. Wave one is disbelief, wave three is recognition and momentum, wave five is euphoria, wave A is denial, wave B is false hope, and wave C is capitulation. Understanding these personality traits helps traders identify which wave is currently unfolding.
Diagonals are wedge-shaped Elliott Wave patterns that occur in specific positions within the wave structure. Leading diagonals appear in wave one or wave A positions and signal the beginning of a new trend. Ending diagonals appear in wave five or wave C positions and signal trend exhaustion. Both types feature overlapping sub-waves contained within converging trendlines.