Elliott Waves Theory: Strong X Waves with Binary OptionsLevel 4/4

X waves are interpreted as being connective ones, in the sense that they are effectively connecting two simple corrections. According to the Elliott Waves Theory, corrections are of two types: simple or complex, and the complex one are being formed by simple corrections connected by another corrective wave: the x wave. Therefore, understanding when it is forming and how many types are is vital in understanding complex corrections.

In other words, what you need to do is to take the Fibonacci retracement tool and effectively measure the length of the first correction (which can be either a zigzag or a flat as triangles are not allowed to form the first corrective wave in a complex correction) and look for the x wave to end ABOVE the 61.8% level. If it does, we should look then for the second correction, usually a contracting triangle, and by the time the contracting triangle is being broken we can effectively engage into trading in the same direction as the triangle broke.

That would be the signal that the complex correction, the one with the strong x wave, is completed and the old trend resumes in the direction of the previous impulsive move, or motive wave, prior to the complex correction.

The very notion of an x wave is something that many traders fail to grasp as the x waves have two important characteristics:

1. are always corrective and
2. are connecting two or more simple corrections.

That being said, the complex correction that forms can have minimum one x wave and maximum two, and the type of the correction and its implications are being given by the length of the x wave. If the x wave goes and ends more than 61.8% it is being called a large one, and a trader should look into trading complex corrections with a large x wave as the implications of future market action are different than in the case of corrections with a small x wave.

An x wave is, like mentioned above, a corrective wave and in the case of strong x waves we’re almost always talking about a complex correction and not a simple one and usually this is a double or a triple zigzag. The 61.8% level mentioned earlier it is being viewed as the minimum level to be broken as, if market is reaching that far, most likely will completely retrace that move and will go well beyond 110% retracement. In the case of running corrections, that are really common double or triple zigzags for the strong x wave and these are movements stronger in intensity then a classical impulsive move.

Taking into account the fact that markets are spending most of the time in consolidation areas, forming ranges, complex corrections are really common so a clear understanding of how they form and what the implications of a complex correction are offers a great competitive advantage to any trader. Complex corrections with a large x wave can form as second waves or fourth waves in classical impulsive moves and out of the two possibilities the second wave is most likely to form such a correction.

In order to identify if a complex correction is possible to form, one needs to measure the length of the first wave with a Fibonacci retracement tool and then to look at the retracement level market is making for the move to follow the impulsive move in the first wave. If the retracement goes beyond the 61.8% retracement level, most likely market is forming a complex correction with a strong x wave as it is unlikely that the second wave is ending beyond 61.8% no matter what the classical interpretation is.

The x wave to follow is therefore a stronger move in the opposite direction as if it is a double zigzag than it is formed by four impulsive waves of a lower degree, and a triple zigzag is actually formed out of six different impulsive moves, so imaging the strength of the move.
If the large x wave is travelling well beyond the one hundred percent retracement it is being called that market is forming most likely a running complex correction with a strong x wave and usually this one is followed by a third wave in a bigger degree impulsive move. This means that not only that the market with not retrace anything out of that complex corrective wave, but in reality it will explode with another impulsive move in the same direction as the x wave of the complex correction travelled.

On the other hand, in the case the complex correction is forming on the fourth wave of an impulsive move, than it is highly unlikely that the market will have a running correction, but merely a double or a triple three and this only if the second wave is a simple correction.
If the above are a bit confusing, make sure you’re watching the videos with this article as they show it on an example.