Elliott Waves Theory: Complex Corrections
Level
4/4

What is a Complex Correction?

Complex corrections are the patterns that make people doubting Elliott Waves analysis really works as the possibilities in this field are really numerous. Complex corrective waves have one thing in common: the x wave. We already have an article regarding the x wave so feel free to take all the information needed from there.

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This x wave represents actually a corrective wave in the sense that it connects two waves of the same degree. Because of that, it can be called an intervening x wave (as it intervenes between two corrective waves) or a connecting x wave ( as it connects two waves of a lower degree).

If the x wave connects two corrections of the same degree, it is being said that the market is forming a double combination. On the other hand, if the x wave is connecting three simple corrections (so basically we have two x waves of the same degree) it is being said that the market is forming a triple combination.

Fibonacci Implications

If the x wave is retracing more than 61.8% from the previous correction, it is very much possible than market is forming a complex correction that falls into the category of double or triple threes.

If the x wave is moving above/below the beginning of the first correction, then market is forming a running complex correction.

Like mentioned above, corrections can be either complex and simple and complex one are happening almost every time when you see price going nowhere for a bigger period. Complex corrections always involve at least two simple corrective waves and an intervening x wave, and almost always the are containing a triangle: either at the end of the correction, or the x wave itself is a triangle.

It is important to know what to expect when counting waves with the Elliott Waves theory as market is forming different patterns that are being characterized as impulsive or corrective. This is the very first thing to ask when looking at a chart: is this move impulsive or corrective? If it is corrective, then the next question should be to the nature of this correction: either a simple or a complex one.

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Because of the principle of alternation that states that the second and fourth waves need to be different, one of the differences is most of the times the complexity. In other words, market will talk to us and if the second wave in an impulsive move turns out to be a simple correction, then almost always the fourth wave is a simple one, so we should look for either a triangle, or a flat or a zigzag for the fourth wave and from the moment the simple correction ended we can say the fourth wave ended as well and we can move on with the fifth wave.

Degrees of Complexity

There are different degrees of complexity a market may have and I am talking about the different cycles that are formed when trading with Elliott Waves and this may be the most difficult thing to grasp in this theory.

There is a strong possibility that a move to the downside on the monthly chart to be corrective, and if it is a complex correction, then we should look for the end of the x wave to give us the possibility to SELL. Based on the nature of wave a (can be either a zigzag or a flat), we know if x wave is simple or not, as x waves are always corrective waves, and this offers a clue regarding how to move forward.
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Knowing if a correction is simple or complex allows traders to set up the right expiration date as in a simple correction we should look for a shorter expiration date while if market is forming a complex one we should look for as much as possible for a bigger expiration date. The thing is that after the x wave we don’t really know if market is forming a double or a triple correction and this tells much about the power of corrective waves.

Most of the times complex corrections appear as second waves in an impulsive move and this implies that the fourth wave will automatically be a simple one. Also a favorite place to find a complex correction is the leg of a contracting triangle. The idea is to try to identify a triangle on the bigger time frames and by the time you go on the lower time frames to trade one specific leg, bear in mind that complex corrections are to be found there. It is not a rule of thumb, but rarely out of five different waves that form a triangle, one is a simple correction.

The difference between simple and complex corrections and how to use the complex one in trading forex is to be found by watching the two video analysis in this article.

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