Technical analysis
Corrective wave
Definition
A move against the larger trend, usually in three waves labeled A-B-C. Common shapes are the zigzag, the flat and the triangle.
Example
After a five-wave rise from $20 to $33, suppose the stock falls to $29 (wave A), bounces to $31 (wave B) and drops to $26 (wave C). This sharp three-wave decline, with C ending below A, is the zigzag shape, and it retraced $7 of the $13 advance, about 54%. Traders who read wave B as a fresh uptrend bought just before the deepest leg.
Hypothetical numbers, for illustration only.
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