Dear friends!

I have covered impulse patterns and their variations in detail in the previous article,
I also explained their construction rules.

Today, I will continue covering the NeoWave theory developed by Glenn Neely in his
book Mastering Elliott Wave. If you are not familiar with the NeoWave theory, read
the previous articles on this topic:

Neo Wave theory. Part 1. Rules for creating charts.

Neo Wave theory. Part 2. Basic information on Polywaves and Structure Labels.  

NeoWave. Part 3. Retracement Rule 1.

NeoWave theory. Part 4. Retracement Rule 2.

NeoWave theory. Part 5. Retracement Rule 3.

NeoWave. Part 6. Retracement rule 4. Conditions “a” and “b”.

NeoWave. Part 7. Retracement rule 4. Conditions “c”, “d” and “e”.

NeoWave. Part 8. Retracement rule 5. Conditions “a” and “b”.

NeoWave. Part 9. Retracement rule 5. Retracement rule 6, condition “a”.

NeoWave. Part 10. Retracement Rule 6. Conditions “b”, “c”, and “d”.

NeoWave. Part 11. Retracement rule 7.

NeoWave. Part 12. Impulsions and the rules to analyze impulse wave patterns

In this article, I will deal with the corrections, their variations, and construction
rules.

NeoWave theory by Glenn Neely. Corrections. Rules to spot a flat and

zigzag. Variations of corrections and formal logic rules

Remember that all the patterns that do not satisfy the requirements for impulses (I
covered them in the previous article) are corrections. Now, I going to cover the
details of the corrective patterns based on the NeoWave theory.

Flats (3-3-5)
This pattern is composed of three sub-waves, its structure is 3-3-5, the sub-waves
are marked with labels A, B, and С. Corrections should observe the following
requirements:

1. Wave B should retrace by at least 61.8% of A.

2. Wave C should be at least 38.2% of A.

First, you need to identify the correction variation. Draw two parallel lines through
the high and the low of the first wave (wave A).
 If the B wave breaks through the horizontal line opposite its beginning, this is
a string B-wave flat.
 If wave B is between 81% and 100% of A, the B wave is normal.

 If wave B is between 61.8% and 80% of A, B-wave is weak.

Strong B-wave

The C-wave mostly depends on the relationship between A and B:

 If the B-wave is between 101% and 123.6%, the C-wave is likely to exceed the
beginning of the B-wave. Besides, if the C-wave is between 100% and 161.8%,
the market is forming an irregular correction.
 If wave B is more than 123.6% of A, there is a remote possibility that wave C
will exceed the beginning of wave B. In this case, the pattern will also be an
irregular correction.

 If wave B is more than 138.2% of A, there is literary no chance that the C-

wave will exceed the beginning of the B-wave.

As long as the C-wave is between the horizontal lines drawn across the extreme
points of the A-wave, there is likely to be an irregular failure flat. If the C-wave
breaks through the horizontal line, a running correctionoccurs in this case.

Normal B-wave

The B wave is normal if it is within the range of 81%-100% of wave A (inclusive). In

this case, the C-wave is likely to exceed the beginning of the B-wave.
 If wave C is less than 100% of B, there is a c-failure flat.
 If wave C is between 100% and 138.2%, the pattern is likely to be a regular
flat.
  If the C-wave is more than 138.2% of wave B, there should be forming an
elongated flat.

Weak B-wave

Wave B is weak if it is between 61.8% and 80% of wave A (inclusive):

 If the C-wave fails to reach 100% of the B-wave, the pattern is a double failure
flat.
 If the C-wave is between 100% and 138.2% of B, there is a B failure.

 If the C-wave is more than 138.2% of B, the pattern unfolding is an elongated

flat.

Formal logic rules

Unlike impulse patterns, the confirmation of a Correction does notrequire a

sequential unfolding of specific retracement events. The order of the confirmation
stages depends on the relations between wave A and wave B. The confirmation
includes two stages. If both of them are confirmed, there can’t be any doubts that
the correction is interpreted correctly. If only the first stage is confirmed, the
current interpretation may also be correct, but you should consider alternative
scenarios as well. The only requirement to confirm that a complex correction has
ended is to confirm the standard correction which terminates the complex
correction.

Flats and Zigzags

The same rules apply to flats and zigzags. All possible variations are grouped into
two cases:
 Wave B is shorter than wave A.
 Wave B is longer than wave A.

Wave B is shorter than wave A

First, draw a trendline across the beginning of wave A and the end of wave B ("0-B"
trendline).

The first stage confirms the authenticity of the correction, post-corrective market
action mustbreak the "0-B" trendline in the same amount of time (or less) that wave
C took to form. If it takes more time, the C-wave is developing into a Terminal, or
wave 4 (of C) is not complete, oryour corrective interpretation is incorrect.

The second stage 2 requires wave-c be completely retraced in the same amount of
time (or less) that wave-c took to form. If this requirement is met, the second stage
is confirmed.

Wave B is longer than wave A

In this case, the correction is confirmed in the reversed order of stages. Stage 1
confirmation is met if wave C is completely retraced in the same amount of time (or
less) that it took to form. Stage 2 confirmation is satisfied if the market breaks the
0-B trendline in the same amount of time (or less) that wave C took to form.
Let us identify the type of the flat correction and confirm that the interpretation is
correct according to the formal (basic) rules of logic.

First, we check if the pattern corresponds to the general criteria. It is clear from the
above chart that the potential wave B of a flat retraces at least 61.8% of wave A
(that is wave B is shorter than wave A, which is considered when the pattern is
being confirmed).
It is clear from the above chart that the C-wave is more than 38.2% of wave A. So,
the second basic rule of a flat is also observed (3-3-5). We also see that wave B is
between 61.8% and 80% of wave A, so, the B-wave is weak.

Now, let us try to identify the type of flat pattern. It is clear from the chart that the
C-wave is less than 100% of the B-wave, so, this pattern is a double failure.
Now we shall confirm a particular pattern, double failure flat using the basic rules
of the logic described above. First, we draw a 0-B trendline through the beginning
of the A-wave and the end of the B-wave.

Let us check if the requirement stating that the post-correction move breaks the 0-
B trendline in the same amount of time (or less) (green area) that wave C took to
form(blue area in the chart). As this condition is met, the first stage is confirmed.
At stage 2 we shall check if the next market move reaches the beginning of the C-
wave in a period of time that is no longer than it took to form. As the green area
that highlights the time it took to approach the beginning of the C-wave (blue
horizontal line in the chart) is less than the blue area marking the time it took to
form the C-wave, and so, the second stage is also confirmed. So, this pattern is
certainly a correction, namely, a double failure, as we identified earlier.

Zigzags (5-3-5)

Zigzags and their complex combinations are the only corrective patterns which can
temporarily “resemble” Impulsive patterns. To avoid misinterpretation, very specific
limits must be placed on zigzag behavior. Below are the minimum requirements
which allow a pattern to be categorized as a zigzag:
 The A-wave should not retrace more than 61.8% of the previous impulse
wave of one larger degree (if present).
 The B-wave should retrace at least 1% of wave A.

 Wave-C should move, even if only slightly, beyond the end of wave A.

If the wave group has followed these three minimum parameters, it is time to check
to adherence to the maximum limits imposed on the B-wave of a zigzag:

 No part of wave B should retrace more than 61.8% of wave A.

 If a part of wave B retraces more than 61.8% of wave A, that part will not be
the end of wave B. It is likely to be the first segment of a more complex
correction for wave B. The end of wave B will complete at 61.8% of wave A or
less.
The deciding factor for categorizing a zigzag formation is the length of the C-wave:

 If the C-wave is less than 61.8% of wave A, this is a truncated zigzag.

 If the C-wave is between 61.8% and 161.8% of wave A (inclusive), this is a
normal zigzag.
 If the C-wave is more than 161.8% of wave A this an elongated zigzag (be
careful with this pattern, it could be part of an impulse wave).

Truncated zigzag

This is quite a rare zigzag variation. To be justified, this formation must meet the
following criteria:
  Wave C cannot be shorter than 38.2% of wave A but should be less than
61.8% of wave A.
 After completion of the zigzag, the market must retrace at least 81% of the
entire zigzag, and preferably, it should retrace 100% or more. This will
confirm the counter-trend strength indicated by the extremely short C- wave.
 A truncated zigzag will most likely be found as one of the five sub-waves of a
Triangle, oras a segment of one of the sub-waves of a Triangle

Normal zigzag

In a normal zigzag, the C-wave can be from 61.8% to 161.8% of wave A. To identify
this pattern, it should satisfy the below conditions:
 Wave B must not retrace more than 61.8% of wave A.
 Wave C should be at least 61.8% but less than 161.8% of wave A.

Elongated zigzag

An elongated zigzag is characterized by an oversized C-wave, that is why it

temporarily resemble impulsive activity. An elongated zigzag is the best imitator of
impulsive behavior. This makes them very difficult to recognize while they are
unfolding. Usually, they can be only confirmed after they have completed.

When the third wave in a sequence is more than 161.8% of the first wave, the
pattern is likely to be the first three waves in a five-wave impulse, rather than an
elongated zigzag. The retracement following the third wave helps to decide
between the two different patterns. After an elongated zigzag, the price should
reverse and retrace more than 61.8% of the C-wave before the end of the C-wave is
exceeded. If these conditions are met, the pattern is likely to be an elongated
zigzag, if the conditions are not met, there is likely to be forming an impulse
pattern.

Besides, take into account that an elongated zigzag appears only in the early stage
of a contracting triangle that is a part of a more complex polywave or a pattern of a
larger degree. It can also appear at a final stage of an expanding triangle, which is a
part of a more complex polywave or a pattern of a larger degree. I will cover
polywaves in detail after describing all variations of wave patterns.

Formal logic rules

Remember that basic rules of logic covered above (in the section devoted to flats)
also apply to zigzags. I will use those rules as an additional confirmation of the
pattern’s authenticity.

Let identify the type of zigzag on the example and confirm the interpretation using
formal (basic) rules of logic.

We shall successively check the minimum and maximum limits required to identify
a zigzag. The blue lines in the chart mark the impulse wave of a higher degree
preceding the zigzag. The beginning and ending points of the waves within the
zigzag are marked with red circles. First, we compare the impulse and wave A. The
A-wave doesn't retrace more than 61.8% of the previous impulse, namely, it is
about 38.2%, so, the first minimum requirement is met.
It is visually clear that the B-wave retrace more than 1% of wave A, and wave C
exceeds the termination of the A-wave. So, the rest two minimum requirements are
met.

Next, we verify the maximum limits of wave B. It is clear from the chart, that the B-
wave is less than 38.2% of wave A, and so, none of its parts can exceed 61.8% of
wave A. So, can be sure that this requirement is met without a detailed analysis of
the wave B structure.

The next step is to measure the length of the C-wave, which is a deciding factor for
categorizing a zigzag formation. Wave C is at least 61.8% of wave A, and so, this is a
normal zigzag, according to the conditions described above.

That is all for today. In the next educational article, I will cover the most complicated
patterns in the Elliott Wave theory, triangles. I will describe the variations of triangle
corrections, and the requirements they must meet.

Take care of yourself and your money! 

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Price chart of BTCUSD in real time mode

Periods
 M1
 M5

 M15

 M30

 H1

 H4

 D1

 W1

Zoom1D1W1M3M6M1YALL30. Nov14. Dec28. Dec11. Jan25. JanDec '20Jan '21F…

15k20k25k30k35k40k45k
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