Elliott Wave theory is the result of one person, Ralph Elliott, that found that people’s behavior, or human nature, is the cause for various patterns that appear in the underlying price of a security. In plain English, market psychology or crowd trading is best represented under the Elliott Waves theory.
An impulsive wave is a five-wave structure that is advancing (in a bullish trend) or declining (in a bearish trend). The rules of an impulsive wave, like any rule with the Elliott Wave theory, are clear and leave no room for interpretation.
Because of their complexity, Elliott divided corrective waves into 2 categories: simple and complex corrections. The complex ones are the most common.
The most comprehensive simple correction is the flat pattern. Here is how Elliott split them further.
As a rule of thumb, a complex correction is formed of two or three corrective waves, connected by an intervening wave. This intervening wave plays the role of an x-wave. It connects the two or three corrections.
The running correction, is, firstly, a correction. It means it refers to the two corrective waves in an impulsive move. These are the second and the fourth waves.
Elliott Wave has clear rules regarding price targets that must be met, but time is more important and is the secret to master the art of speculation.
A running correction is a concept that is easy to understand. The problem is to be able to accept that these corrections form often on the currency market.
The purpose of x-waves is to connect two or three simple corrections. Together with the simple corrections, the x-wave/x-wave’s form a complex correction.
Perhaps one of the most important patterns Elliott ever discovered, double and triple combinations form all the time. Not only that they are important but they are quite common.
The limiting triangle forms after a bullish or bearish trend. And, always breaks in the direction of the underlying trend.
