Elliott Waves – Types of Flat Patterns
Flats are corrective structures that are being labeled with letters: a-b-c. The first two waves in a flat pattern are corrective, so they are three waves structures, while the c wave is always an impulsive wave. Because of this, a classical flat structure is a 3-3-5 one. Waves a and b can be either simple or complex correction, while the c wave is a five waves structure with either a 3rd, 1st or 5th wave extension. The key in interpreting a flat pattern stays with the b-wave though. Based on the retracement level of the b-wave into the territory of the previous wave a, we have many types of flats. They are divided into three big categories, and each category has more than two types of flats that fit in.
The Key Stays with the B-Wave
As you should know by now from other articles that are part of our Forex Trading Academy, a flat is always having the b-wave retracing more than 61.8% of the previous a-wave. In order to find out exactly where that level is, one should take a Fibonacci Retracement tool and drag it from the start of the a-wave until the end of it. Moreover, there are other levels to be considered as well and they can be added to a Fibonacci tool. To add a level, the Fibonacci tool should be selected, then the Levels tab should be used to add the desired value. We are interested in adding the 80% retracement and 123.6%. These are the other Fibonacci levels that matter for a flat pattern, as mentioned in the article dedicated to the Fibonacci retracement tool.
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Flats with Weak B-Wave
Flats that are falling into this category are having a b-wave that is not able to retrace more than 80% of the previous a-wave. Therefore, the b-wave retracement is a weak one due to the relatively small size of the b-wave. Flats with weak b-waves are further dividing based on the length of the c-wave that follows. In this situation, there are three possible lengths for the c-wave, or for the only impulsive wave in a flat pattern:
- The first possibility is that the c-wave fails to take the lows in the previous a-wave, therefore being smaller than the b-wave. Such a pattern is really powerful and shows a move in the opposite direction of the flat to come in quite an aggressive wave.
- The next possible length of the c-wave is to take the lows in the previous a-wave but to fail to move more than 123.6% when compared with the length of the a-wave. Therefore, just measure the length of the a-wave, find the 123.6% extension, project it from the end of the b-wave, and you’ll have an educated guess where this type of flat will end its c-wave.
- Last but not least, if the c-wave is a really strong impulsive wave, that moves well beyond the 123.6% level, ideally beyond the 161.8%, the whole a-b-c pattern is becoming elongated. This is important as signals a bigger consolidation on the bigger degree might be in cards.
Flats with Normal B-Waves
In this category are included some flat patterns that have the b-wave moderately strong, in the sense that it is retracing almost completely the previous a-wave. It is important to consider only the end of the b-wave as the place to interpret the retracement level, and not the highest of the lowest point in the pattern. If the b-wave is retracing between 80% and 100%, there are three possible types of flats as well, based on the same interpretation of the length of the c-wave:
- C-wave fails to move beyond the end of the previous a-wave. A very powerful flat forms when this is happening and usually this calls for a sharp move in the opposite direction of the flat. This means that if the flat is a bearish one, a sharp move higher will start.
- C-wave ends beyond the end of the previous a-wave, but no more than 123.6%. Moderate flats fall into this sub-category, being either part of a complex correction or individual simple corrections like a 2nd or a 4th wave in an impulsive wave, or b-wave in a zigzag or flat pattern of a bigger degree.
- C-wave ends beyond 138.2%. This is by far the most aggressive scenario for the c-wave and again it calls for a range or consolidation on a bigger degree.
Flats with a Strong B-Wave
These are the most confusing type of flat patterns as both bulls and bears are being stopped. Imagine the following scenario: in this pattern, the b-wave is completely retracing the a-wave, only for the c-wave to follow to completely retrace the b-wave as well. In this way, initial bears are stopped as they are placing the stop loss at the start of the a-wave, while bulls that bought the b-wave will be stopped as well by the c-wave that follows. Like it was the case with the previous two categories, based on the length of the C wave, there are different types of flats that fit here:
- C-wave fails to completely retrace the b-wave. This is happening only if the b-wave is so strong and stretches well beyond the 123.6% level mentioned above. The stronger the b-wave, the more waves a and c will look alike.
- C-wave ends beyond the end of the previous a-wave, but not more than 123.6% of the a-wave. This is a flat that is quite rare, despite the fact that many Forex traders are considering such a pattern.
- C-wave stretches more than 138.2% beyond the end of the a-wave, and, like it was the case with the previous categories, it signals a consolidation on the bigger degree.
Knowing what type of a flat the market is forming is vital for the overall interpretation of Elliott Waves theory. There are situations when it is not possible for a specific pattern to form except if a specific type of flat is part of it. Therefore, one can trade such a pattern with quite some confidence. Out of all three types of corrective waves (flats, zigzags, and triangles), flats are the most numerous ones and complicated. The following article will be dedicated to the types of the zigzags that exist and how to interpret them based on both the retracement level of the b-wave as well as on the length of the c-wave to follow.
Other educational materials
- Trading with the Apex of a Contracting Triangle
- Types of Contracting Triangles
- Special Types of Triangles
- Types of Expanding Triangles
- Trading with X Waves
- The Concept of a Running Correction
Recommended further readings
- Technical analysis of the financial markets: A comprehensive guide to trading methods and applications. Murphy, John J. Penguin, 1999.
- “Prediction Models of Financial Markets Based on Multiregression Algorithms.” Wilinski, Antoni. The Computer Science Journal of Moldova 19, no. 2 (2011): 178-188.