Definition

Markets move in rhythms. An impulse wave that defines a major market trend will have a corrective wave before the next impulse wave reaches new territory. This occurs in either bull market or bear market conditions. The most common approach to working with corrections is to relate the size of a correction to a percentage of a prior impulsive market move. In regards to the 3-wave patterns, Fibonacci Retracement indicates how far a corrective wave B could go before wave C is born. The first support level is the one marked by 38.2% and if price moves through it then it becomes a resistance line and a new support level shifts to Fibonacci level of 61.8%.

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