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Rules for Corrective Patterns
Secondly, let us discuss the 'Rules of Corrective Patterns'
What are the various rules and guidelines to identify Zigzag Patterns?
Zigzags are corrective patterns.
1. Zigzag Pattern: In a zigzag pattern, Wave A and Wave C will have an internal structure of 5 wave pattern and Wave B will have an internal structure of 3 waves.
Rules for Zigzag Pattern
Rule 1: Wave A should be a 5 wave structure and should be less than 61.8% of the entire previous Impulse wave
Rule2: Wave B should retrace at least 1% of wave A. However, Wave B should not retrace more than 61.80% of Wave A
Rule 3: Wave C should end beyond Wave A
Rule 4: Rule of alteration: it states that “adjacent or alternate waves of the same degree should be different and non-matching in as many ways as possible” Rule of alteration in Zigzag correction applies to Wave A and Wave B.
Wave A and Wave B will alternate with respect to following:
Price: Wave B will be less than 61.8% of wave A
Time: If wave A is “n” units of time then
1. Wave B will be less than or equal to 61.8% of “n” OR
2. Wave B will be greater than or equal to 161.8% of “n”
Subdivision: The number of subdivisions will show alteration in Wave A and Wave B
Pattern: The type of pattern will show alteration in Wave A and Wave B. Wave A is an impulse and Wave B is a correction.
The image above shows the Zigzag pattern formation on daily charts of Nifty 50.
Here we can see the pattern adhering to all the rules of Zigzag patterns
- Rule 1: Wave A is showing a 5 wave structure
- Rule 2: Wave B is not retracing more than 61.8% of A
- Rule 3: Wave is C is ending beyond Wave A
- Rule 4: Wave A and Wave B are obeying the rule of alteration (price, time and pattern alteration)
Rejo Panicker
This document is curated by Mr Rejo Panicker. He is a passionate student of the market since 2017, pursuing a full-time trading career. He has a keen interest and understanding of the Elliott Wave Theory. Through his learning and experience he aims to create newer highs in the markets and aims to break Mr Dan Zanger's record.