A 5-wave trend can be reversed by a 3-wave countertrend that is full of corrective waves in Elliot Wave Theory.

The Elliot Wave Theory is generally applied to bull markets, but it may prove useful in bear markets as well. You just have to flip many of its assumptions on their head when you use them to apply to a bear market.

There is a 5-3 wave pattern that works in a bear market and looks like this:

The 3 Types of Corrective Wave Patterns

Flat Formation

The first type of movement that you might see is something known as a flat formation. This looks something like a “W”, and it is when the movement of the currency pair is very back and forth compared to normal.

There are reasons to be concerned if you see this formation because it may indicate that the market is not certain about where it wants to go.

Zig-Zag Formation

This pattern forms when there are very steep moves in a downward direction on a currency pair. This can happen sometimes because there is a lot of negative news that has come out about the pair, or simply because the traders in that pair are no longer confident in its ability to hold up as well as they had anticipated that it might before.

Either way, the Zig-Zag formation is something to be on the lookout for when you are working with the charts and formations that you have available to you at this time.


Triangle Formation

Triangle formations are corrective formations. They form when the market is bouncing back and forth between descending trend lines.

If you spot this type of formation, it is a pretty good sign that you are likely seeing a prolonged bear move that you should pay close attention to.