Elliott Waves Theory – Introducing Double and Triple Flats
Elliott found that some patterns are difficult to be completely retraced by a wave of the same degree, and double and triple flats are falling into this category. As a matter of fact, these patterns are really rare, but when they do form, a trader that uses the Elliott Waves theory knows what to do in order to be profitable. It goes without saying that both a double and a triple flat are complex corrections that have at least one x-wave, in the first case, respectively two x-waves, in the last one. For more details regarding the nature of these x-waves and what the implications are for future patterns, please refer to the articles dedicated to this subject here on our Forex Trading Academy. Between a double and a triple flat pattern, the double flat is most likely to form, with the triple one being really rare. This thing, with patterns being really rare, should be taken with a grain of salt in the sense that it depends on what is the financial product that it is traded. On some markets, that statement is very much true. On other markets, though, like the Forex market is, a double or triple flat patterns are not that rare and it is important to know their implications.
What Are Double and Triple Flats Patterns
Double and triple flat patterns are complex corrections that, well, have either two or three simple flats, connected by one or two small x-waves. It is important to know where these patterns appear and what types of flats form these patterns.
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Deciphering a Double Flat
A double flat pattern is forming more often and it is unlikely that the first flat in the overall pattern will be one with a strong b-wave. Just as a reminder, a flat with a strong b-wave is one that has the b-wave retracing beyond the start of the previous a-wave, and, in some cases, it may end beyond 138.2% and even 161.8% levels. Such a case should be ruled out as the first correction in a double flat pattern. Instead, we should rather see a common flat or an elongated flat most likely at the start of a double flat. Moreover, if a double flat is starting with an elongated flat pattern (a flat that is having the c-wave more than 161.8% when compared with the length of the previous b-wave), then the second flat pattern is almost always a flat with a failure. In this category, we know that that are many flat patterns to be found, and all of them are possible to be found here. The one type that is most likely to appear in such a case is a flat with a double failure.
The fact that the b-wave fails to retrace more than 80% of the previous a-wave, coupled with the inability of the c-wave to completely retrace the previous b-wave, makes this type of a flat pattern an extremely powerful one. As a matter of fact, whenever such a flat is to be met, it is a sign that the market is preparing to make an important move in the other direction. The simple fact that the pattern has not only one but two “failures”, is really a sign that the trend prior to the flat pattern is about to resume. And when this is happening, the whole move is really a violent one. Another thing to consider in a double flat pattern is that this is one pattern that is channeling really well. However, the very notion of channeling is a bit misunderstood when it comes to Elliott Waves theory. You see, according to Elliott, channeling doesn’t imply price must be contained between two parallel lines! In reality, in order for a pattern to channel according to Elliott rules, it is enough to connect two or maximum three points (depending if the correction is a double or a triple one) and see if the price is hovering around these lines. If yes, (even if it is not quite reaching the edges of the channel, or exceeding them a bit), the pattern is considered as one that is channeling. Continuing on the same line, the logical process goes the other way around as well: in order for a pattern to be considered a double flat, it MUST channel according to Elliott rules. This way, it is practically impossible not to be able to find out the end of a specific pattern, especially if that one involves a double flat. As for the places a double flat may appear, most likely it is to be found as the a-wave of a flat of a bigger degree, or the e-wave of a triangle that is about to break in the opposite direction. If it is the e-wave of such a triangle, then the double flat will end almost surely with a flat with a failure. When completed, the reversal in the other direction will be so abrupt and violent, that most of the unprepared traders will be taken by surprise.
What Makes a Triple Flat Pattern?
A triple flat pattern is made of three different flats (refer here on the types of flats mentioned in previous articles on the Forex Trading Academy) connected with two small x-waves. It is really rare that the market will form such a pattern and Elliott identified two possibilities where it may appear. One will be the longest leg of a contracting triangle, (this means either the a-wave or the b-wave, as these are the longest segments in a horizontal or irregular triangle) or the terminal phase of an impulsive wave. In plain English, it should appear as the 5th wave in a terminal pattern, or the longest leg of a contracting triangle. Both situations are rare, but not that rare on the Forex market!
The whole Elliott Waves theory is a beautiful one, and the more one thinks he/she knows about the subject, the more there is to be found. However, it is the one and only theory that allows incorporating the time element into any analysis, and therefore it is worth every trouble.
Other educational materials
- Types of Zigzag Patterns
- Contracting and Expanding Triangles
- How to Use the Apex of an Expanding Triangle
- Trading with the Apex of a Contracting Triangle
- Types of Contracting Triangles
- Special Types of Triangles
Recommended further readings
- A web-based CBR agent for financial forecasting Liu, J. N., & Leung, T. T. (2001). . In Workshop 5 Soft Computing in Case-Based Reasoning.
- Design and evaluation of automatic agents for stock market intraday trading. Jabbur, E., Silva, E., Castilho, D., Pereira, A., & Brandão, H. (2014, August). In Proceedings of the 2014 IEEE/WIC/ACM International Joint Conferences on Web Intelligence (WI) and Intelligent Agent Technologies (IAT)-Volume 03 (pp. 396-403). IEEE Computer Society.