Corrective Waves

AAA

DEFINITION of 'Corrective Waves'

A set of stock price movements that occur against the main trend according to the Elliot Wave method of technical analysis. According to the Elliott Wave theory, stock price movements occur in predictable cycles. These movements are broken up into motive waves and corrective waves. Motive waves are stock price movements in the direction of the trend, and corrective waves are movements against the trend. Together, motive waves and corrective waves form certain patterns which are the basis of the Elliott Wave theory.

INVESTOPEDIA EXPLAINS 'Corrective Waves'

Elliott Wave theory was developed by Ralph Elliot, and introduced in his 1938 book, the Wave Principle. The theory was expanded by A.J Frost and Robert Prechter in the Elliott Wave Principle: The Key to Stock Market Profits. The theory is controversial, and is difficult to verify, due to the subjective aspects involved in its implementation. Also, as a technical analysis technique, the Elliot Wave theory runs against the efficient market hypothesis, a dominant theory in modern finance.

RELATED TERMS
  1. Wave

    A pattern of behavior marked by noticeable increases and decreases. ...
  2. Cyclical Stock

    An equity security whose price is affected by ups and downs in ...
  3. Market Cycles

    1. Trends or patterns that may exist in a given market environment, ...
  4. Technical Analysis

    A method of evaluating securities by analyzing statistics generated ...
  5. Elliott Wave Theory

    Theory named after Ralph Nelson Elliott, who concluded that the ...
  6. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
RELATED FAQS
  1. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Book value of equity per share (BVPS) is a ratio used in fundamental analysis to compare the amount of a company's shareholders' ... Read Full Answer >>
  2. Does stockholders equity accurately reflect a company's worth?

    Stockholders' equity is one method to evaluate a company's worth. It tends to work better for companies in established industries ... Read Full Answer >>
  3. How can I spot trading opportunities looking at year-to-date (YTD) performance?

    Trading opportunities on the long side can be spotted by looking at stocks with the worst year-to-date (YTD) performance, ... Read Full Answer >>
  4. What are common growth rates that should be analyzed when considering the future ...

    Some of the most common growth rate metrics that investors and analysts consider in evaluating a company's future prospects ... Read Full Answer >>
  5. What metrics are often used to evaluate companies in the drugs sector?

    Some of the equity valuation metrics that analysts and investors most commonly use to evaluate companies in the pharmaceutical ... Read Full Answer >>
  6. How does Net Operating Profit After Tax give a clearer view of the operating efficiency ...

    Net operating profit after tax (NOPAT) gives a clearer view of the operating efficiency of a company. While NOPAT is a measure ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Advanced Channeling Patterns: Wolfe Waves and Gartleys

    Discover how these provide the trader with insight into both the timing and scope of breakouts.
  2. Trading Strategies

    Triple Screen Trading System - Part 2

    Market tide is the basis for making trading decisions in this three-part system.
  3. Trading Strategies

    Profit Without Predicting The Market

    Traders who try to predict the future can actually harm their trading options.
  4. Forex Education

    Elliott Wave Theory

    Acquaint yourself with the principle built on the discovery that stock markets did not behave in a chaotic manner.
  5. Mutual Funds & ETFs

    Surf's Up With Filtered Waves

    With an appropriate filter, you can ride the waters to rising profits.
  6. Chart Advisor

    Stocks Breaking to Downside - Time to Sell?

    These stocks have broken patterns or trendlines to downside, indicating more selling could be coming.
  7. Chart Advisor

    3 Ways To Trade The Bounce In Coal

    News from the Supreme Court has caused active traders to turn their attention to the coal markets. We'll take a look at how to trade the bounce.
  8. Chart Advisor

    How Investors are Profiting from Cyber Crime Fear

    An ETF that has seen significant gains this year in the growing field of cyber security, and the threat and fear of cyber attacks and cyber crime.
  9. Fundamental Analysis

    Are Fast-Casual Restaurants Overvalued?

    Can fast-casual restaurants actually grow to the levels that investors believe they can?
  10. Chart Advisor

    Buy These Stocks on The Pullback

    These four stocks are in upward sloping trend channels and have recently pulled back toward the bottom of the channel, providing a buying opportunity.

You May Also Like

Hot Definitions
  1. American Dream

    The belief that anyone, regardless of where they were born or what class they were born into, can attain their own version ...
  2. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  3. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  4. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  5. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  6. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!