What a Running Correction Is?
Before even starting to talk about running corrections, we should settle what the word running means. It is pretty much simple to explain it: in a bullish trend, so in an upside move, it means that the 2nd wave of an impulsive move will actually end above the end of the previous first wave. The opposite is true as well: in a downward move, so a bearish move, the end of the 2nd wave will have to be below the end of the previous first wave.
What are the implications for such a pattern? Well, they are sever, in the sense that a running correction is always being followed by a strong move in the same direction, leaving behind nothing but traders scratching their heads about what just happened. There is also the strong tendency of market participants to believe such patterns are coming rarely, which is not really the case. Actually, they are quite common and failing to understand this leads only to painful mistakes.
Running corrections should be understood as being something really normal especially when trading the forex markets with CFDs or when trading binary options based on a currency pairs analysis.
Looking for the Extension
According to the Elliott Waves Theory, in a five wave structure there is at least one wave that is extended and this means that its length it is minimum 161.8% when compared with the previous one in the sense that this is the minimum distance to be traveled. All good so far, but where is the extension being calculated from?
The key is to know where to start and this depends very much on the extended wave. Most of the extended waves are third waves and that makes the second wave to be a complex correction. When the x wave, or the intervening X wave is a big one (namely it is bigger than 61.8% when compared with the whole previous correction of the same degree), then chances for the second wave to form a running correction are quite strong.
Running corrections appear most of the times as second waves in an impulsive move and therefore it goes without saying that the third wave is going to be the extended wave. If the impulsive move is a bullish one, or rising, then BUY contracts/call options are to be traded. On the other hand, if the impulsive move is a bearish one, or falling, then SELL orders /put options are recommended.
In both of the situations above, the fact that we’re talking about an impulsive move that starts the third wave it means that there is when the wave is going to extend and this says much above the speed and velocity the market is traveling with. Expiration dates in these case can be a bit shorter than otherwise recommended.
Using the Zigzags
Second most common place for a running correction to form is as a b wave in a zigzag and this kind of pattern is extremely rewarding. We are talking about an aggressive b wave as because it is a zigzag it should not retrace more than 61.8% when compared with the previous wave a and because the correction is a running one, it should end above the end of wave a. After that comes the extension but being a zigzag, we have one more important clue: it should not channel.
Last but not least, a running correction can appear as a fourth wave in a five wave structure but this kind of particular situation is a bit tricky in the sense that it is forming really rare and it is being followed by a super powerful fifth wave in an impulsive move that is called a fifth wave extension.
Running corrections are failed to be properly understood by traders as the very concept of a corrective wave to end above the previous first wave highs (in the case of a bullish impulsive move) or lows (in the case of a bearish impulsive move) is difficult to understand. One clue may come from the fact that, despite the general belief, the second wave in an impulsive move is rarely ending beyond the 61.8% retracement of the previous first wave. Whenever this is happening, the way to interpret and label the market is to look at that retracement to be part of a running correction, namely only wave a of a running correction and the b wave and the x wave to follow to exceed the highs.
Importance of a Running Correction
All in all, running corrections are pretty important in trading and analyzing markets with the Elliott Waves Theory as traders are interested to find out when market is traveling the fastest and quickest as the very concept of quick and easy money is appealing to each and every investor. We all know that is not how trading goes but money management and discipline together with understanding how markets are moving pave the way for successful binary trading.
The two videos with this article are dealing with concept of running correction and its implications for the following extended move.