Elliott Wave - the Basic Pattern - lesson 2

It is important to remember that Elliott Wave is not a method but more a theory
and a great way to analyze the market.
- The most common type of correction is a 3 wave correction.
- According to Elliott wave theory a 3 wave correction could be either a Zig-Zag or
a flat correction; for simplicity I will refer to all 3 wave correction as an A-B-C
correction.
- All other types of corrections will be referred to as complex corrections.

Zig Zag - made of 3 waves; A - B - C.
Wave A divides into 5 sub waves, wave B divides into 3 sub waves and wave C
divides into 5 sub waves.
- Wave B is usually 38.2% or 50% of wave A.
- Wave C is usually 100% or 161.8% of wave A.
A-B-C Guidelines:
1. Wave C should go beyond the extreme of wave A.
2. We begin to assume that wave C is over, once price turns and goes back into the
range of wave A; at that point the bare minimum conditions for a correction are
complete.
3. Once price surpasses the extreme of wave B, we assume that the correction is
over.

Flat - made of 3 waves; A - B - C.
Wave A divides into 3 sub waves, wave B divides into 3 sub waves and wave C
divides into 5 sub waves.
There are 2 kinds of Flat corrections, Normal and Expanded (like in the photo) flat.
In the expanded flat, wave B exceeds the beginning of wave A and wave C goes
beyond the end of A. In a normal flat, wave B does not exceed the origin of wave
A.
Triangle

Triangle is made of 5 waves; A-B-C-D-E.
Each wave divides into 3 sub waves.
A triangle usually occurs in wave 4.
At the end of wave E, price will shoot up (or down) in a thrust.

See Lesson 3