P1: PIC/PIC c03
August 18, 2008
Printer: Yet to come
Practical Pattern Recognition for Trends and Corrections
FIGURE 3.9 Failed Overlap
simple ABC example and then learn the rules and guidelines and how this information can be used for practical trade decisions. Iâ€™m going to use E-wave type nomenclature to identify the pivot highs and lows and usually call them waves. The terms wave, swing, and section are all used to identify the same thing. Waves that are a part of a correction are labeled with letters, such as Wave-A (W.A), Wave-B (W.B), etc. Figure 3.10 is a daily chart of American Airlines (AA) showing an ABC correction followed by a bull trend to a new high. Following the Wave-C low, AA traded up into the range of Wave-A for an overlap and pattern signal that AA should be making a correction to a bull trend, not a bear trend to a new low. Once the overlap is made, we donâ€™t know if the correction has ended as a simple ABC or will develop into a complex correction. What we do know is that it probably is a correction and will eventually continue to advance to a new high. We also know that the minimum three sections for a correction are complete. A continued advance to above the Wave-B high is a pattern signal that the corrective low is probably complete and the advance will continue.