Take this quiz, then check your answer against one of our top analysts

By Elliott Wave International

Do you see a pattern you recognize in this chart of Reynolds American (RAI)?

The Wave Principle separates price action into two categories: motive and corrective, and this price chart has a clear example of one category.

Take a close look, remembering that five-wave moves are motive while three-wave moves are corrective. Then see if you can answer these questions:

1. Do you see a motive or a corrective move?
2. What’s the name of the pattern? (If motive: impulse wave or ending diagonal; if corrective: zigzag, flat or triangle)
3. Do you see wave patterns within the larger waves of the pattern?

Here’s some help from Senior Analyst Jeffrey Kennedy:

“A defining characteristic of this pattern is that it tends to be contained within parallel lines. It is the most prevalent corrective wave pattern.”

That’s a bit of a giveaway. Now label the waves on the chart between the words Top and Bottom.

Now, here’s Jeffrey’s labeled chart:

Notice that the Wave Principle uses A-B-C to label corrective waves and numerals 1 through 5 (or in this case, i through v) for motive waves.

Jeffrey explains that zigzags, which consist of three waves, are more prevalent than flats or triangles. Their substructure is 5-3-5 because wave A subdivides into five waves, wave B is a three-wave structure, and wave C also contains five waves.