The simple and complex correction concept
A “simple” corrective structure is, as the name says, the basic structure which shows three waves. It is, for example, a zigzag, flat or irregular pattern.
A “complex” corrective structure is a combination of simple structures. Complex structures are, for example, a triangle, two zigzag patterns, a zigzag and a flat structure, and so on. The reader doesn’t have to feel uncomfortable trying to memorise each corrective structure. To ease this comprehension, Elliott left us a key concept: the alternation.
The second essential concept is alternation, which is nature’s law. The same way as the day alternating with the night; a bull market alternates with a bear market. Impulsive waves alternate with corrective waves. So, corrective waves alternate one with the other.
We know that an impulsive movement has a five-wave sequence, where waves 2 and 4 are correctives. The alternation says that if wave 2 is simple, wave 4 will be complex; conversely, if wave 2 is complex, its wave 4 will be simple.
Elliott in this treatise didn’t expand this point. He considered the volume useful for the wave analysis. In corrective waves, the volume tends to decrease from the beginning to the end. It’s independent of the corrective structure shape.
Understanding Corrective Waves is critical due to the considerable time that market consolidates.
The reader shouldn’t feel uncomfortable trying to guess the corrective structure’s name.
The first step is to identify the initial corrective wave. The second part comes from the application of the alternation rule.
Remember that if wave 2 is a simple corrective structure, the probability that wave 4 will be complex is high.