Other Complex Corrective Structures

Other Complex Corrective Structures

Unfortunately the three types of corrections which comprise independent ABC structures do not encompass the entirety of the complex structures. To make the problem of recognizing corrections more difficult there are three other types that start with a simple Zigzag.

We have covered the situation when a correction develops as a Zigzag, which by definition is a three-wave move that is labelled ABC. It is quite common for this ABC move to actually become the first wave of a more complex structure. These additional structures are the Flat Correction, Expanded Flat Correction, and Triangle.

Flat Corrections

A Flat Correction is very simply that the three legs of the correction—which I refer to as Wave Fa, Wave Fb, and Wave Fc develop in a manner that the Fb retraces from the initial ABC correction (Wave Fa) back to the same area as the end of the trending move (Wave Fb). From that same area, price then moves back to the first corrective point at Wave Fa, but this develops in a five-wave move to complete Wave Fc (as shown in Figure 2.9).

Figure 2.9 A Flat Correction

Flat Corrections can occur at any corrective point in the wave structure. Thus, this could be Wave 2, Wave 4, Wave B, or even Wave X.

In the example in Figure 2.10, USDCHF rallied in five waves in Wave (A), in which Wave 4 was an ascending Triangle. This was followed by Wave Fa, a recovery to the peak at Wave 5, and a second decline in Wave Fc back to the same point as Wave Fa. This formed the correction in Wave (B).

Figure 2.10 A Flat Correction within an ABC Rally in 10-minute USDCHF