In our Education Section there is a lesson, called “Elliott Wave Patterns”, where you can learn in details about all three variations of the flat correction. The most important thing you should know about a flat is its wave structure. It consists of three waves, labeled A-B-C. Waves A and B have three sub-waves, while wave C is a five-wave impulse. An idealized example of the expanding type of flat is given below to help you get the general idea.
The good news is that flat corrections usually look exactly like this. The bad news is that “usually” does not mean “always”. Sometimes wave B, instead of being a simple “three”, takes the form of a triangle. This makes the whole pattern a lot more confusing, even for the experienced analyst. It does not happen very often, but you should always be prepared for it. The 15-minute chart of EURUSD provides a real example of a flat correction with a triangle wave B.
As visible, this flat interrupts the larger uptrend. Pay attention to the structure of the waves. An a-b-c zig-zag for A and a triangle for B. The impulsive wave C begins only after the end of wave “e” of B. The next example shows the same pattern, but in the price of silver.
The flat we are talking about here comes as wave (B) of a larger (A)-(B)-(C) zig-zag correction. Note that inside (B) there is an a-b-c in A, a triangle in B and a five-wave sequence in C. When the wave (B) flat is over, the larger pattern continues in the face of wave (C) to the upside. So far, both examples showed a flat with a triangle in wave B, interrupting a larger uptrend. The third and most recent one, depicts the same pattern, but moving against a larger downtrend in GBP/USD.
As you can see, it is the same pattern, but inverted. After the end of wave C, the larger downtrend has resumed. “Why should I know about this strange type of flat” you may ask. Because, in order to initiate a trade, you have to have a pattern recognized. If you are unaware of the existence of this one, you would not be able to recognize it and you will simply miss an opportunity to make money. And trading is all about making money, right?
