ABCDE correction is a powerful Elliott wave pattern that generates maximum profit if one knows
how to use it prudently in the financial markets. It gives an edge to Elliott wave traders who wants
to time the markets precisely. Truly, all one wants to do is to sit and learn to master just that pattern
and trade it like a specialist. However, like every other Elliott wave pattern, it requires that one uses
it in conjunction with other financial market principles. At the end of this article, one will be begin to
correct past ABCDE correction technical analysis errors.
All Elliott wave traders love the ABCDE correction because it allows them to time the breakout trading more precisely when the ABCDE correction is completed.
Image that illustrates the ABCDE correction.
Recognising ABCDE Correction
ABCDE correction often takes place during the fourth Elliott wave but
can occur also in the second wave. It is a consolidation in a
triangle with a distinctive price structure (3,3,3,3,3). The triangle
is subdivided into five minor waves (ABCDE), where each wave is
subdivided into three minor waves.
that generally three (3) refers to a correction, therefore, each
minor wave, A, B, C, D, and E is
Also in the minds of Elliott wave traders, five means impulse, but most importantly "time for a change". Generally, when one counts 1, 2, 3, 4 and five waves in one direction, one will expect a change in the direction of the price.
One wants to grasp that fundamental truth about the Elliott wave count.
Therefore, as one counts A, B, C, D, E (five waves in one direction horizontally), one will expect a change in the form of a breakout or break down.
The ABCDE correction can also occur during the Y wave of the WXY corrective wave.
Two Things About ABCDE Correction
There two things one ought to retain about the ABCDE correction. The first is the triangle (outer pane of the pattern).
last things are the internal waves A, B, C, D, and E.
Many times, Elliott traders who use the Elliott wave theory like an exact science miss fantastic trading opportunities just because they have not grasped those two things about ABCDE correction.
One must always remember that the triangle is the most important part of ABCDE correction.
Though, one can pinpoint the breakout trading set-up after the E wave, sometimes, the price can continue to oscillate in the triangle after the E wave.
So instead of five distinctive minor waves ABCDE, one may have seven or nine minor waves in the triangle before the breakout will occur.
Obviously, many Elliott wave traders get confused because of those prolongations.
Therefore, to avoid those unnecessary confusions, one ought to acknowledge that the ABCDE correction is a consolidation in a triangle, and trade it first as a consolidation. By doing so, one will be alright.
The structure of the internal waves also allows Elliott wave traders to swing trade from one end of the triangle to the other until a breakout occurs.
Their structures (3,3,3,3,3) also help traders to pinpoint the equilibrium price level that the price is acknowledging, and that is the median line of the triangle. Note also that sometimes, it becomes difficult to isolate each internal wave or detect a clean-cut ABCDE correction with the exact structure (3,3,3,3,3).
If that is the case, do not worry too much about it; but focus on the triangle itself because that is the main thing. Understand that the realities of the markets can differ from the Elliott wave theory or principle. Messy things do
happen in the financial markets.
Clean-cut ABCDE Correction
Quite often, the moody financial markets can become very friendly, and one can identify a clean-cut ABCDE correction.
It is often the case in the fourth Elliott after an extended third Elliott wave (3rd wave going beyond 161.8% Fibonacci extension of the first Elliott wave). During those circumstances, the market players who were pushing the price in one direction during the third Elliott wave are all waiting for the last lap (5th wave) of the motive wave (trending phase of the Elliott wave cycle). Consequently, as the ABCDE correction is under way during the fourth Elliott wave, they all start placing a trade at the end of the E wave of the ABCDE correction. That high demand (high trading volume) to buy or sell at the completion of the E wave is critical for the validation of the ABCDE correction, and ensuing bullish or bearish breakout.
One may identify ABCDE correction, but if at the end of the E wave there is no demand to buy or sell the asset, there will be no breakout but instead a complex correction (prolonged correction).
The lack of no demand to buy or sell the asset can also cause the price to continue to oscillate within the triangle.
The clean-cut ABCDE correction allows Elliott traders to time the breakout precisely. However, to take advantage of that opportunity, one ought to follow the trading drill once the clean-cut ABCDE correction is completed.
the ABCDE correction as a trading set-up.
- Apply a top-down trading method to control the risk.
- Check the trading volume if possible.
- Stay calm, but check the economic news and adhere to the trading triangle.
Different Types Of ABCDE Correction Triangles
about different types of triangles; all one needs to consider are the
regular triangle patterns such as symmetrical, ascending, descending,
expanded , normal and even distorted triangles. Note that, when one
is trading the ABCDE triangle, the normal chart patterns trading
rules are still applicable. It is amazing how ordinary technical
traders often take the lead over the Elliott wave traders when it
comes to triangle patterns trading. It should not be the case. So to
avoid that beating, do not be fixated on the ABCDE waves, but instead
on the triangle. Trade first the triangle, and use the ABCDE
A common trading mistake is to quickly buy or sell as soon as the ABCDE correction pattern is in place.
Another thing traders must bear in mind is quite often one can successfully buy at the end of the E wave.
Moreover, one can also add to that position if there is for example a higher low above the triangle or lower
high below it.
Traders use the ABCDE correction to time their breakout trading precisely. However, to get the best out
of the ABCDE correction, one should the following:
1/ Give precedence to the triangle over the internal waves.
2/ Always trade the ABCDE correction like a consolidation.
3/ Check the location of the ABCDE corrective triangle.
4/ Be very calm and patient and let the price comes to you.
5/ Take the trade using different times frame.
6/ If the trading signal becomes obsolete, close the trade without a second thought.
7/ Use the clean-cut ABCDE correction in conjunction with the trading volume
That is it about all one needs to know about the ABCDE correction.
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