Corrective wave
When a market moves against its main trend, how do traders read that countertrend move, and what does its three-part shape suggest?
In plain words
A corrective wave is a move against the prevailing trend, read in wave counting as a smaller, three-part structure rather than a five-part impulse. It retraces part of the earlier move but is not expected to reverse the larger trend by itself.
Why it matters
Corrective waves can look like the start of a new trend, which is where countertrend positions are most often taken and unwound. Reading a move as corrective changes what is expected next: a resumption of the earlier direction rather than continuation of the bounce.
In a real week: ETH, week of 31 January 2022
ETH entered the week of 31 January 2022 after four weeks that alternated between falls and small rises, including -17.66% and -24.14%, and it sat 36.97% below its 52-week high. It fell to a low of 2476.07 early on Monday, recovered, then slipped 3.83% on Wednesday 2 February before a best day of 11.12% on Friday 4 February. It closed at 3054.99 on Sunday, up 17.42%, in the upper third of a 24.17% range, on volume below its prior 12-week average.
A common mistake
Assuming any three-part move is automatically corrective, or that a corrective label guarantees the prior trend resumes. The count is a reading of the pattern, not a confirmed outcome.