Corrective Waves


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.

BREAKING DOWN '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.

  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. Qualitative Analysis

    Securities analysis that uses subjective judgment based on nonquantifiable ...
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

    ChartAdvisor for October 2 2015

    Weekly technical summary of the major U.S. indexes.
  7. Investing

    How Diversifying Can Help You Manage Market Mayhem

    The recent market volatility, while not unexpected, has certainly been hard for any investor to digest.
  8. Technical Indicators

    Why MACD Divergence Is an Unreliable Signal

    MACD divergence is a popular method for predicting reversals, but unfortunately it isn't very accurate. Learn the weaknesses of indicator divergence.
  9. Chart Advisor

    Weakness In Biotech Will Likely Continue

    You can breathe easy with your biotech holdings--assuming you aren't counting on them to make you rich.
  10. Stock Analysis

    The Biggest Risks of Investing in FireEye Stock

    Examine the current state of FireEye, Inc., and learn about some of the biggest risks of investing in this cybersecurity company's stock.
  1. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  2. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  3. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  4. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  5. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  2. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  3. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  4. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Capitalized Cost

    An expense that is added to the cost basis of a fixed asset on a company's balance sheet. Capitalized Costs are incurred ...
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!