Difference between ABC and WXY Elliott Corrective Waves

19 янв. 2022 г.

Elliott Wave Principle, developed by Ralph Nelson Elliott, proposes that the seemingly chaotic behaviour of the different financial markets isn’t actually chaotic. In fact the markets moves in predictable, repetitive cycles or waves and can be measured and forecast using Fibonacci numbers. Elliott wave predicts that the prices of the traded financial instrument will evolve in waves: five impulsive waves and three corrective waves.

This educational article aims to present only the difference between ABC and WXY corrective waves and will not cover other wave paterns (triangle corrective waves , or any of the impulsive (motive) wave structures)

Both ABC and WXY corrective waves are patterns made of 3 waves (swings) corrective structure and this similarity mostly confuses practitioners while labeling. The main difference between the two is in the internal subdivision of the waves (legs)

Each pattern has its own rules, where ABC could be
- a ZigZag patern that have 5-3-5 internal stracture


- a Flat (Regular, Running or Expanded Flat) patern that have 3-3-5 internal stracture


while WXY patern is made of 3-3-3 internal stracture. WXY is combination of two corrective patterns, hence often called as a double three or a double correction. Each wave W, X or Y could have almost any corrective structures (double three, triple three, zigzag, flat, triangle (wave W can’t be a triangle structure), or any complex combinations)

WXY is also know as 7 swing stracture even it is made of 3-3-3 internal swings, the X-wave is considered as a connector wave because it binds two corrective waves and is counted as 1, W and Y waves are counted as 3 and hence 7 swings


WXYXZ is combination of three corrective patterns, hence often called as a triple three, a triple correction or 11 swing, WXY rules applies also for WXYXZ


Tips:
An elliott wave practitioner in general may assume a trend continuation once an ABC correction is completed. In todays market complex corrections are more common than simple corrections, the markets are in a correction phase nearly %70-%80 of the time. Hence, once an ABC correction is completed a trend continuation failure must be considered in the trading plan and in fact, this failure is the main characteristic of the X-wave, a trend that has failed. Once X wave is completed another corrective structures is to be expected

live examples (not financial advice, just experimental analysis)
GOLD


BTC



Below is a link to Elliott Wave Oscillator study, where the "EWO with Signals" indicator helps traders to track the waves (in lower degrees). It provides insight to traders to observe when an existing wave ends and when a new one begins