After initial Elliot waves formation reaches its breaking point (wave 5). We can expect so called ABC correction formation of Elliot waves. This pattern can be repeated at the end of the trend up to thee times. As with every move on the market each swing of ABC formation is a wave that consists of another waves according to fractal geometry. Do not over analyse. Look for patterns in your current timeframe.
ABC reversal formations of Elliot waves.
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Elliot wave A (Corrective formation)
While A wave is being created, news are still positive. Most of the traders will still see the market as bulls. Hoverer experienced forex traders may notice increased volume on this swing down. End of A wave falls below previous low reached by declining wave number 4.
Elliot wave B (Corrective formation)
Price temporarily swings higher, which may be seen as beginning of new bullish move. Inexperienced forex trader may consider this to be head and shoulders formation and good opportunity to enter long. Swing high however happens on low volume, which denies real strength behind it. Fundamental news while wave B is in progress are no longer positive. Most of the times, wave B fails to surpass previous high reached by wave number 5.
Elliot wave C (Corrective formation)
Volume accompanying swing C is increasing substantially. Price falls down impulsively. At this point masses of forex traders are becoming aware that bullish market has ended and bears are taking over (downtrend). Wave C confirms reversal formation, it may also be begging for another complete Elliot wave formation downwards.
