The Elliot wave theory allows traders to predict different points where trends in the market are likely to reverse. This then lets you to identify when to enter or exit the market to maximize your profits. This method of market analysis helps traders to monitor patterns in the direction of market prices.
Elliott Waves Theory: What is The Flat Corrective Wave and How Does It Work?
The Elliot pattern is made up of impulsive waves and corrective waves. Impulsive waves comprise of five sub waves and are in alignment with the trend of the larger sized wave that follows. Meanwhile, a corrective wave is made up of three sub-waves, which move against the trend of the next wave, which is of a much larger size.
A flat correction is one of the three main complex corrective patterns. It is different from the zigzag pattern, which is the only simple corrective pattern. The flat wave pattern has a 3-3-5 wave pattern. The first wave is known as wave A. It does not have adequate downward momentum to form a full, typical five-wave pattern. Wave B also lacks enough force to form a full wave and thus the B wave ends close to the start of wave A. At the same time, wave C also ends slightly after the end of A wave.
In flat corrections, the preceding waves are less retraced compared to the zigzag correction. The flat trend is likely to form when the underlying market trend is powerful.
Types of flat corrective waves
There are three predominant types of flat corrective waves. These include:
Expanded flat: This is arguably the most common flat wave formation and occurs in the second and fourth wave of an impulse wave. What connects the expanded wave to the initial impulse wave is a zigzag or other types of triple or double connection. In a bullish market, the price of the underlying asset moves against the trend to form a 3-wave shape. In an expanded flat wave, wave B also appears in a 3-wave structure and goes beyond the start of wave A, while wave C extends beyond the end of wave A. The expanded wave is also known as an irregular flat although this term can be misleading as the expanded wave appears more often than other types of waves.
Regular flat correction: In a regular flat correction, wave B ends slightly at the start of the wave A while wave C ends just beyond the end of wave A.
Running flat correction wave: A running flat wave is a 3-3-5 wave. Here, wave B terminates past the start of A wave and C stops almost close to the end of wave A. The formation of a running flat is quite rare. The difference between the expanded flat and the running flat is the point at which wave C stops. In an expanded flat, Wave C ends beyond the end of wave A.
All in all, each type of corrective flat is essentially an ABC wave with a 3-3-5 sub-waves or configuration. It is also important to note that these types of corrective flats go against the trend of the impulse wave, one degree higher.