Wave 4 Corrections

In my last post, I illustrated some potential trade setups in the daily charts of JASO and GLDN. The latest market retracement has led to several complex corrections in many of the Wave 4 scenarios that we've seen. In this series, we'll take a quick look at the types of corrections that need to be accounted for during a typical Wave 4.

The Simple Wave 4 Correction

When we talk about corrections, we are typically referring to any wave that isn't an impulse wave. Wave 1, Wave 3 and Wave 5 are impulse waves. Wave 2 and Wave 4 are the waves that correct the price action between the impulse waves; hence the name corrective. Success in trading markets comes from the ability to dechipher what is normal and what is abnormal. By understanding price action behavior, you can begin to act on these events.

The Simple Correction of Wave 4 is simply a clean trend against the primary direction of Wave 3. Below is the typical chart pattern of a simple Wave 4 Correction.

The simple Wave 4 correction is one that does not contain any wide whipsawing action as the price action retraces.

In regards to the Complex Wave 4 correction, we can see that the corrective nature of Wave 4 has an A-B-C formation. Both of these pattens still established true Wave 4's but in very different ways. Learning to anticipate this type of price action can help keep good Type I candidates on your trading radar even through a complex correction. I'll follow up later in the week with examples of how these patterns can be traded.

Trade smart......

~Duane Gott