WXYXZ Elliott wave is a 5-wave corrective formation which is also known as the “Triple three combo”. It is called a “triple three” because it includes 3 main corrective waves (W,Y and Z) combined by 2 sub waves (2 Xs) in between. This particular wave correction appears in a prolonged sideways market.
Or perhaps it’s the other way around, the sideways market happens because of the WXYXZ Elliott wave… it’s really a chicken and egg situation.
All of the 5 waves are composed of various corrective wave types hence the name Triple three combo. Although the waves are called as “threes”, triangles can also be a part of the WXYXZ wave correction. Obviously triangles are comprised of 5 waves.
Perfect WXYXZ correction example on NZDCAD
Summary of the wave types within the WXYXZ as per the chart:
- W – Flat ABC (b wave completely retraced the a wave and the c wave is an impulse 3-3-5)
- X – wxy (double combo – 3-3-3)
- Y – wxy (double combo – 3-3-3)
- X – Running flat (b wave net length is more than the a wave and the c wave is a motive that failed to completely retrace the b wave, hence a running flat)
- Z – wxy (double combo 3-3-3). In this the y wave is ironically a WXYXZ in the lesser degree
This post couldn’t have been timed any better, because the WXYXZ wave example of NZDCAD above seem to be just completed. The expectation now is for a bullish impulse.
See also the BTCUSD WXY double-three combo correction example (ongoing)
How to identify a WXYXZ corrective wave?
If there happens to be a sideways market for far too long, then most probably the correction is a WXY double combo or the WXYXZ triple combo. You must also consider the context of the timeframe and compare previous wave cycles to differentiate prolonged stagnant market conditions.
Step by step approach to identify Elliott wave patterns:
- Start from higher timeframes MN or W1
- Draw along the explicit and obvious waves on the chart
- Consider the waves drawn from step 2, to be of the lesser degree
- aggregate the waves and label them as abc, abcde, wxy, wxyxz or 12345 accordingly
- zoom in and out of the chart to identify combinations of Elliott wave patterns from step 4, to form patterns in the current degree
- now combine the patterns of the current degree to form WXY or WXYXZ combinations
WXYXZ is a complex structure and Elliott wave labelling is a highly subjective process. After a corrective pattern completes, we can anticipate the impulse. In fact it is the whole purpose of Elliott wave theory. But as the market changes, our anticipation must change.
Progressive labelling with changes in the market
I will explain using the NZDCAD chart example above:
As the first ABC correction (W) wave completes, naturally our anticipation is for the next bullish motive wave to commence. In fact a bullish wave commences – seemingly with the characteristics of a motive wave.
However, the market creates a 3 wave pattern (W of the lesser degree marked in red). At this point we would not know that the wave is complete, and our expectation would still be for a 4th wave correction in the lesser degree. Because the initial anticipation still stands, and it is for the wave 1 in the current degree.
Rules for an impulse states that wave 2 and 4 cannot overlap. So as soon as the market moves the price, well below the pivot of what would have been the wave 1 of the lesser degree, our expectations should change.
Why?, because wave 1 in the current degree did NOT happen. It is because the 5 wave motive in the lesser degree did NOT happen.
Now the labelling should change from 1,2,3 to wxy, and the new anticipation is for the continuation of the correction. This is how progressive Elliott wave labelling should work.
Why is it important to learn about the combo waves?
Well, there are several reasons! If you learn how to dissect the market corrections, then you can achieve the following:
- anticipate and trade the next impulse.
- look for trade opportunities within the correction.
- depending on the strategy, work on the best possible entry zones for trades.
- understand the more realistic stop-loss and take-profit zones.
- understand the fractal nature (multiple degrees) of the markets and adapt to the trading-context and timeframe accordingly.
- forecast on larger timeframes to get a birds-eye macro view of the market.
Combo waves (WXY and WXYXZ) are very common in prolonged corrections. If an impulse fails to occur after a corrective pattern, then a combo wave is on the cards. So it does help to have a good understanding of these patterns.
In conclusion, WXYXZ has not a specific pattern such as the ZigZag or the Triangle. WXYXZ is a combination of 5 corrective patterns. Total minimum wave count to form a WXYXZ is 15. In a sideways market, if it is unclear as to what patterns have occurred, you must count the number of waves to an odd number above15 to possibly complete the WXYXZ Elliott wave.