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An overview of basic corrective structures - Part 2

Last week, Guest Blogger DV34, posted a set of chart pattern diagrams. These are a really useful reference on what correction patterns look like. Here's a follow up providing examples of some of these patterns in current charts. It includes a fascinating 100 year look at the Dow.

By DV34

Following on from the overview of corrective structures last week here are some examples from various markets around the world

Starting off, the first example I thought I would use is the Eurostoxx 50 index, mainly because it has numerous examples of corrective patterns on the higher timeframes, as a side note it is also the market I wrote about in April last year here which has played out as expected

I will start from the lower timeframes and work upwards through the timeframes, namely to try and show them in the order that I presented them in the last article

Eurostoxx 50 Monthly Chart - Complete 8 Wave Cycle

Complete 8 Wave Cycle
Click to Enlarge

The 8 wave structure above also has an example of a ‘running’ flat between point III and A, however this failed at point B and then fell to the support level at point C forming an ABC/ Zigzag pattern

Eurostoxx 50 Monthly Chart – Zigzag/ ABC/ 3 Wave Correction

Zigzag; ABC or 3 wave correction

This Zigzag pattern/ ABC pattern is on a macro chart, corrective moves are often 3 swing moves

Eurostoxx 50 Quarterly Chart – Triangular Correction

This example is a macro sideways triangle pattern, and currently we are within the 5th swing, I do not know if it will get down to the lower support line but the overall structure is pretty clear

Triangular Correction

Dow Jones Industrial Average – Quarterly Chart (Normal Scale) – Irregular Flat

Irregular Flat

I put the % swing moves to show the impact of the rally leading into this pattern, and while the irregular flat pattern shown looks a lot larger than the bull market leading into it, the % swings are only 1/12th the size.

As a side note - when you see charts that move parabolic such as this 1217% move here, you can try looking at the chart using a log scale… When you do this to 100 years of the Dow Jones Industrial Average you get this chart below… This is the forest through the trees…

Dow Jones Industrial Average – Quarterly Chart (Log Scale) 100 years….

Dow Jones 100 years

Dow Jones Industrial Average – Quarterly Chart (Log Scale) 100 years (Simplified)

Dow 100 years simplified

I have deliberately chosen the higher timeframes and even macro charts to demonstrate that these patterns are fractal, and are present across all timeframes

This is not intended to show how to trade these situations but rather to help identify where we are in the larger picture and to get a better understanding of the overall market structure and how that could fit into your own plan

Good luck and hope it helps

DV