Wave ( iv ) is a corrective wave that follows the strongest part of the rally in wave ( iii ) up. It starts when sentiment of the crowd reaches its peak. Subwave ( c ) of wave ( iii ) up finally tops after relentless rally that refused to let bears cover shorts. It just kept pushing price higher making bull euphoric and bears fall into despair.
In majority of cases wave ( iv ) follows three most common corrective structures. The first is “Flat” structure. It is subdivided into three subwaves labelled as ( a ), ( b ) and ( c ).
The main distinctive feature of the flat structure is that subwave ( a ) down has clean a-b-c subdivision.
The main distinction between the “Flat” and the “Simple Zig-Zag” structures is the internal structure of the first leg down, subwave ( a ). In the Simple Zig-Zag two subwaves ( a ) and ( c ) have impulsive structure and are subdivided into five micro waves. As I noted above, in the Flat structure the first leg down in subwave ( a ) has a clean a-b-c structure.
In general the Simple Zig-Zag delivers a deeper and quicker correction than the one shaped as the Flat. That is explained by the fact that Flat has only one subwave ( c ) structured as an impulsive wave. In contrast, the Simple Zig-Zag has two impulsive subwaves ( a ) and ( c ).
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