As there are numerous possibilities when it comes to complex corrections, they often make people double that analysis using Elliott Waves Theory actually works. However complex corrective waves actually all have one thing in common, and that is the X wave. The X wave connects 2 waves of the same degree and thus represents a corrective wave. It may either be an intervening X wave if it intervenes between 2 corrective waves or it may be a connecting X wave, which connects 2 waves of a lower degree.
When an X wave is seen to be connecting 2 corrections in the same degree, the market is said to be forming a double combination. However if the X Wave connects 3 simple corrections, the market is said to be forming a triple combination.
If an X wave retraces more than 61.8% of the prior correction, it is highly likely that the market is forming either a double or triple complex correction.
If the X wave moves either above or below the start of the 1st correction, the market must be forming a running complex correction.
Corrections may either be complex or simple, and complex corrections occur virtually every time that the market prices are seen to be inactive for an extended period of time. A complex correction will always involve a minimum of 2 corrective waves with an intervening X wave, and virtually every time they will contain a triangle at the end of the correction or with the X wave itself being a triangle.
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Elliott Waves Theory – Impulsive or Corrective Waves
When using Elliott Waves Theory and counting waves, it is vital for traders to know what they can expect as the market will form various patterns that may be either corrective or impulsive. Therefore, the first thing to consider when observing a technical chart is whether or a move is corrective or impulsive. If the move is corrective, the next thing to think about is the nature of the correction, and whether it is complex or simple.
The market has several degrees of complexity, and when trading using the Elliott Waves Theory, this can be quite tricky to understand. It is very possible that a move that has been observed to the downside of a monthly chart may be corrective and if this is the case, the trader should look for the X wave’s ending point to show them the likely place to trade their put option. The wave’s nature, either flat or zigzag, will inform the investor whether the X wave is a simple correction and this will give a clue as how to proceed.
How to Trade a Complex Correction
Being aware of the nature of a correction i.e. complex or simple, will enable a trader to choose the corredct expiry date. For a simple correction, a shorter expiry date should be selected, whereas in the case of a complex correction, a bigger expiry date should be chosen.
Usually, a complex correction will appear as the 2nd wave of an impulsive move, and this implies that the 4th wave will be a simple correction. Another place where complex corrections are frequently found is in a contracting triangle’s leg. The key is to find the triangle on a bigger time frame and then move to the lower time frame to trade a specific leg, bearing in mind that the complex correction will be found there. Although this is not the case every single time, it is extremely rare to find a simple correction out of the 5 waves that form a triangle.
Being aware of how to trade complex corrective patterns will improve a trader’s chance of success when trading binary options and will lead to fewer financial losses.
Other educational articles
- How to Use Hedging Strategy to Manage Risk Effectively in Binary Options Trading
- Using Fundamental Analysis in Binary Options Trading
- Elliott Waves – Insights For Trading The 2-4 Trend Line Break To Increase Your Profits
- Elliott Waves – The Implications Of A Running Correction To Reduce The Risk Of Painful Trading
- Using Fibonacci Confluence Zones To Trade Binary Options
- Finding The Right Striking Price Using Fibonacci Levels Is Key In Successfully Trading Binary Options
- Technical analysis plain and simple: charting the markets in your language. Kahn, Michael. FT Press, 2006.
- “A joint review of technical and quantitative analysis of financial markets towards a unified science of intelligent finance.” Pan, H. P. In Proc. 2003 Hawaii International Conference on Statistics and Related Fields, June, pp. 5-9. 2003.