Technical learnings: Types of correction (Irregular and flat)

Correction Patterns:

So what are corrections or corrective moves? Basically in simple words the correction is a movement in stock price which joins two impulses or trending moves. As the name suggests a correction is just  a temporary phenomenon and when they are over a trending move begins.

A corrective move is found between two impulses i.e. when a trend ends corrective move begins and similarly when a corrective move ends a new trend begins. Every impulse has five legs i.e. 12345 & leg 2 & 4 in each impulse are corrective moves or correction patterns. They are usually smaller price wise but bigger time wise than trending moves (1,3&5). They often presents a directionless trade and spend too much time doing nothing. Which makes them harder to trade.

Once markets have taken a big trending move it needs time to digest those move, corrective pattern help market digest previous move.

Below are the main Corrective moves or Correction pattern which can be found. 


Corrective Patterns



1. A-B-C simple zigzag : Simple zigzag is most simple and common pattern found . They usually found in wave 2 of an impulse. in such corrections wave A & C tends to be equal though sometimes wave C can stretch to 161.8% of wave A

2. A-B-C Flat corrective: Its similar to zigzag only thing is all the legs in such patterns tends to be equal. So entire correction is like a channeled move.

3. A-B-C Irregular correction: Irregular corrections are most confusing of the lot and are very common too ( they are also called expanded flat). In such corrections wave B will always cross start point of wave A, giving an impression that correction is over however just when everyone goes long prices turn down and C leg turns lower than end point of wave A which gives the impression as if a new trending move has started on the downside. However as soon as the wave C ends, the prices turns in opposite direction and the reversal is usually very fast and sharp, catching everyone with surprise. Irregular corrections when identified can be an excellent trading opportunities however its almost impossible to identify them in advance. But they can be identified when they are nearing completion or already completed.