Wave X
Wave X is a connecting wave that joins two simple corrections together in a complex corrective pattern. Complex corrections form when a single A-B-C pattern does not complete the corrective process in terms of price or time. The market needs more correction, so it links one simple pattern to another using Wave X as the bridge. Wave X is typically a brief, shallow correction itself. It most often takes the form of a zigzag, though it can be any three-wave structure. In a W-X-Y pattern, Wave X connects the first correction (W) to the second (Y). In a W-X-Y-X-Z pattern, there are two X waves connecting three simple corrections. The depth of Wave X gives you information about the strength of the corrective force. A shallow Wave X (retracing less than 70% of W) suggests the next correction (Y) will move in the same direction as W. A deep Wave X (retracing more than 70% of W) can signal that the corrections will alternate in direction. Recognizing Wave X in real time helps you avoid the mistake of calling a correction complete too early.
USD/JPY completes a zigzag correction (W) from 155.00 to 150.00. Price then bounces to 152.00 in Wave X, retracing 40% of the initial drop. This shallow Wave X tells you the corrective process is not finished. Wave Y then drives price from 152.00 down to 147.50 in another zigzag. The complete W-X-Y structure produced a much deeper correction than the initial zigzag alone. A trader who recognized the shallow Wave X bounce as a connector rather than a trend resumption avoided going long at 152.00.