Basic Building Block of any Pattern:
A-B-C Fractal
Prices for assets, stocks, currencies, bonds and ever real estate, never go up and down in a straight line fashion. Prices in all the markets move in zig zags because people are driving force of any market. And when human beings make decisions on buying or selling stocks, real estate, or art they do that under influence of emotions and cognitive biases.
The vast majority of market participants are driven by prime emotions like fear or greed. They chase price all the time. They buy when price goes up long enough to make them confident it will keep going in the same direction.
They sell when price goes down deep enough to make them scared. First, they see price falls under the level where they bought a stock. Then it continues to fall relentlessly day after day. An investors starts looking for expert opinions and they say “the worse is not over”. This is when fear kicks in and investor gets confident price goes to zero and he or she will most likely lose all the money invested.
That never ending shift of prevailing sentiment among the market participants create a natural rhythm of the market. One step forward, one step back and one step forward again. That simple! Price makes a move up, then down and then up again. It’s like a dance when partners make simple repeating moves but combination of those simple steps creates a beautiful performance. Let me show you how simple A-B-C moves of different sizes combined together form long term rallies and corrections that last months and years!
MAIN FEATURES
- The first move in the wave A up is the first action of a new A-B-C up fractal
- In A-B-C up fractal bulls push the price higher in the wave A until no one is willing to pay a new higher price. This is when bears react to the first rally based on the conviction that price went too far too fast
- In any A-B-C up fractal the starting point at the low of the wave A up is a critical support for subsequent corrective wave B down
- The starting point of wave A can not be breached by wave B
- A corrective wave B down can push price all the way down to the starting point of the wave A. In that case we say that "wave B retraced 100% of the preceding wave A".
- However, wave B is not allowed to fall under the starting point of the wave A up. If that happens, we say that "the pattern gets invalidated".
- In majority of cases, corrective wave B down manages to push price down to a distance equal to 1/3, 1/2 or 3/4 of the distance covered by the first rally in wave A up.
- Subwave C up has to make a higher high over the top of the subwave A
The best way to understand how this pattern works is to study collection of charts with real life examples.
- Subscribe Now and Start Learning
- Introduction to Section 6 “Corrective Waves”.
- Simple Zig-Zag.
- Correction shaped as a Simple Zig-Zag.
- Regular Flat.
- Bonus: Trading corrective waves shaped as a Regular Flat.
- Running Flat.
- Expanded Flat.
- Correction Shaped as a Triangle.
- Bonus: Triangle can play dirty tricky games.
- Triangle: Key Takeaways.
- Wave B is the least predictable beast.
- Bonus.Wave B explained.
- Two types of corrective structures: “through time” vs “throw price”.
- Complex Corrective Pattern: Double Three.
- Guidance on Alternation Between Corrective Waves