The ABC Pullback — TheValueTrader Research

WAVE ASharp selloff — often mistaken for reversal

WAVE B38%–79% retrace of Wave A — the fake-out

WAVE C~1:1 with Wave A — often a lower low

WAVE C FIB ZONE61.8%–78.6% of the full impulse

CONFIRMATION SIGNALMomentum divergence (RSI/MACD)

INVALIDATION — WAVE 2Can't drop below where Wave 1 started

INVALIDATION — WAVE 4Can't overlap Wave 1's price range

φ 01

What Is an ABC Pullback?

In Elliott Wave Theory, price doesn't move in a straight line. After a strong trending move in one direction, the market naturally takes a breather — and that breather follows a predictable 3-wave pattern we call the ABC correction.

Understanding how to spot an ABC pullback is one of the most practical skills you can develop as a wave analyst, because it tells you when the trend is likely to resume, and where to look for your next entry. This is where I spend most of my time.

φ 02

The Bigger Picture — Impulse + Correction

Before we zoom in on the ABC, let's anchor it in the full structure. Elliott Wave Theory says price moves in two distinct phases:

Impulse Phase

5 Waves, With the Trend

5 waves in the direction of the larger trend, labeled 1 through 5. This is where the real money is made if you're trading with the trend.

Corrective Phase

3 Waves, Against the Trend

3 waves that move against the trend, labeled A, B and C. This is the pullback — not a reversal. It's the market digesting gains before the next leg higher.

φ 03

Breaking Down the Three Waves

Wave A — The Selloff

The initial selloff after the impulse peaks at Wave 5. Many traders mistake this for a reversal. It's usually sharp and feels scary if you're long. Volume often picks up — this is the market shaking out weak hands.

Wave B — The Fake-Out

The counter-rally: price bounces back up, but it's a fake-out. It typically retraces 38% to 79% of Wave A (I show this on my charts). This bounce can look bullish, which is exactly what makes it a trap for undisciplined buyers.

Wave C — The Completion

Where the correction completes. It's typically equal in length to Wave A — a 1:1 ratio is the most common relationship — though it can extend, and we've seen that often recently. Wave C often drops below the Wave A low, creating a classic "lower low" that flushes out the remaining weak longs before the next impulse gets underway.

φ 04

The Key Rules to Keep in Mind

There are hard rules in Elliott Wave that you can use to invalidate your count if broken:

WAVE 2Never closes below the origin of Wave 1 (the Wave 0 low)

WAVE 4Never overlaps with Wave 1's price territory

If either of these is violated, your count is wrong — and that's actually useful information.

One more pattern worth flagging, though it isn't a hard rule: in a regular flat or zigzag, Wave B tends to stay below the high made by Wave 5. That's not universal — in an expanded flat, Wave B can push past the Wave 5 high and print a new high of its own before Wave C turns down hard. Treat it as a tendency to watch for, not something that invalidates a count on its own.

φ 05

Where to Look for the Resumption

Once Wave C completes, you're looking for the next 5-wave impulse to begin. Common confirmation signals to combine with your wave count:

Momentum divergence on Wave C — price makes a new low, but RSI or MACD doesn't
Wave C lands in the 61.8%–78.6% Fibonacci retracement zone of the full impulse

φ 06

TVT ABC Framework — Quick Reference

Wave A

Sharp selloff

Wave B

38–79% retrace (fake-out)

Wave C

~1:1 with A, often lower low

Resumption Zone

61.8–78.6% Fib

This content is for educational purposes only and reflects my personal perspective and experience using Elliott Wave Theory. It is not financial advice, investment advice, or a recommendation to buy or sell any security. All investing involves risk, and you are responsible for your own decisions. Always do your own research.