Hello there, this is tradingpedia.com and this video deals with another concept related to the Elliott Waves Theory. We move on to the flat patterns, and a flat is a corrective pattern labeled with letters: a-b-c.
The key to interpreting the flat pattern is the b-wave. Namely, it must retrace more than 61.8% of wave a. Also, another thing to consider is that both waves a and b are corrective, while only the c-wave is impulsive.
In other words, of a lower degree, waves a and b may form a simple or a complex correction, and the c-wave must be an impulsive wave, 1-2-3-4-5.
A flat pattern looks like this in a bearish trend. The market makes a correction, labeled as wave a. Only by the fact that we use a letter, we assume a corrective structure.
Because the key stays with the b-wave, it must retrace beyond 61.8% of wave a. So, the next market segment must exceed or retrace the level, for the market to form a flat. Therefore, this is the end of the b-wave. And then the market forms an impulsive wave in the opposite direction, and this is how a flat pattern looks like.
This is one type of a flat pattern, but there are no less than ten types of flat patterns. The idea is to identify correctly the b-wave as it holds the secret in interpreting a flat pattern.
Type of Flats
Literally, there are three categories to consider, depending where the b-wave ends. For this, we need to find out the 61.8% level. The next level is 100% and then 123.6%. Also, let’s write here that depending on the b-wave ends, we have a different category of flats.
Why is this important? Depending on the type of the flat we can interpret the market. According to the Elliott Waves Theory, various types of flats signal different things. If we know the category, we can find the type and have an idea regarding what comes next according to the Elliott Waves Theory.
For instance, if the b-wave retraces between 61.8%-80%, the market forms a weak B-wave. Every time when it ends here, the market forms a weak b-wave. Next, depending on the length of the c-wave we have different types of flats. We won’t mention them in this video but proceeds with the ones in the first category.
The b-wave can also retrace between 80%-100%, and these are normal b-waves. Also, a retracement between 100%-123.6% leads to another category – flats with a strong b-wave. Finally, it can go all the way to beyond 161.8%.
As you can see, wave a has no influence, the c-wave gives the type of the flat, but everything is subject to the interpretation of the b-wave’s length.
Let’s that this EURUSD at 1.1917, the previous high. The market moved lower and this segment does not look like an impulsive wave for the simple reason that it is split in equal parts, meaning that there is no extension. We might consider that this is wave a of a flat.
Next, we find out the 61.8% level. We may say that this is the b-wave that retraced between 80%-100%, meaning that the 61.8% minimum condition was reached. Now the market starts the c-wave.
If we know the end of the b-wave, this is called a flat with a normal b-wave and the c-wave tells us the type of the flat and we interpret the next move.
Stay tuned for the second part as we describe the three flat patterns that come into the category of flats with a weak b-wave. Bye, bye.