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Zig Zag and Flat Patterns in Trading

BEGINNER ELEMENTARY

INTERMEDIATE EXPERIENCED

Unlike motive waves, corrections are more complicated and

tricky structures. They're simple and complex correction
patterns:

Zigzag
Flat
Double / Triple Zigzag
Double / Triple Threes
Triangles
The first two (a zigzag and a flat) are simple patterns, which
are bricks of complex corrections. In this article, we're going
to examine zigzag and flat patterns.

What's a ZigZag pattern in trading?

The Zigzag pattern is a movement of the price in the form of a
zigzag. In a nutshell, it's a line connecting two almost parallel
lines so that they form a zigzag shape. It's a so-called
"correction wave," and it can lead to bullish, bearish, or
sideways movement depending on the circumstances. Later
in this article, we'll describe every zigzag pattern you may
meet in your trading routine and how to identify it in your
trading platform.

Like most correction patterns, zigzag subdivides into three

waves, which are marked as A-B-C.

The Main Rules for Zig Zag Patterns

Zigzags subdivides into three waves.
Wave A is always an impulse or a leading diagonal.
Wave B could take the form of any correction pattern.
Wave C is always an impulse or an ending diagonal.
Wave B is shorter than wave A.
Wave C is longer than wave B.
Waves A and C are motive, wave B is corrective.
Most traders believe price goes in waves. Zigzag is one of the
most important price waves, and you can spot it after almost
every impulsive wave (impulse that contains five waves).
Remembering these rules may seem hard at first glance, but
when you get accustomed to them, your trading will improve
gradually.

Also, you can set up a Zig Zag indicator, a trading tool that
helps you to identify correction waves.

The Zig Zag Indicator Formula

We'll start from a complex formula for advanced traders and
then move to a simpler version.

ZigZag (HL, %change = X, retrace = FALSE, LastExtreme =

TRUE)

If %change >= X, plotZigZag

where:

HL = High-Low price movement

%change = Minimum price movement, in percentage

Retrace = Is a retracement of the previous move or an

absolute change from peak to trough

LastExtreme = If the extreme price is the same over multiple

periods, the extreme price is the first or last observation

This formula is useful if you need to set up your own Zig Zag
indicator. And if you just want to understand how a Zig Zag
indicator works, here're some tips.

1. Choose a starting point (swing high or swing low).

2. Choose % price movement.
3. Identify the next swing high or swing low that differs
from the starting point => % price movement.
4. Draw trendline from starting point to new point.
5. Identify the next swing high or swing low that differs
from the new point => % price movement.
6. Draw trendline.
7. Repeat the most recent swing high or swing low.
"=>" means "is equal or bigger than" (e.g. X => 5 means "X is
equal or bigger than 5).

To install a Zig Zag indicator, you need to download it from

the MQL5 website and follow our tutorial on how to install a
custom indicator in MetaTrader.

Zig Zag Indicator Limitations

Zig Zag is a lagging technical indicator that is moving after
the market, now in front of it. That means you may see a
movement almost ending, and suddenly, a Zig Zag indicator
draws a line. Thus, you may consider using this indicator with
other powerful technical indicators to help you spot an
upcoming movement earlier. A such indicator is the Fibonacci
retracement tool that helps traders to mark possible support
and resistance lines. Don't forget to read about technical
indicators in MT4 to understand how they work.

What is a Flat Pattern in Trading?

A flat pattern is a correction wave subdividing into three
waves and marked as A-B-C, but the structure is different. It is
a corrective pattern that runs against the trend. The pattern
tends to be a retracement of the previous trend and may look
like a flag pattern. At other times, it may look like a simple
range that spends more time going sideways than making any
real progress in price.

Types of Flat Patterns

As you can see from the chart below, there’re three types of
the flat pattern depending on the length of waves B and C.

Regular Flat: Wave B is almost equal to wave A (at least 90%),

while wave C tends to be equal to wave B.

Expanded Flat: Wave B is longer than wave A and wave C is

longer than wave B.

Running Flat: Wave B is longer than wave A, but wave C is

shorter than wave B.

The Main Rules for Flat Patterns

Flats consist of three waves.
Wave A could be any correction pattern except
triangles.
Wave B could be any correction pattern, but in most
cases, it's a zigzag.
Wave C is always an impulse or an ending diagonal.
Wave B has a length of more than 90% of wave A.
Wave C is usually equal or even longer than wave B.
Waves A and C are motive, wave B is corrective.

Real Examples of Zig Zag and Flat

Patterns
Downward Zig Zag Pattern
The chart shows a simple zigzag in wave (ii) with impulses in
waves a and c. This is the most common structure of zigzags.
Also, pay attention to a leading diagonal, which has formed
after wave (ii). The pattern confirmed the ending of the
zigzag.

Upward Zig Zag with a Leading Diagonal in Wave a

Elliott wave patterns form on all markets, including
cryptocurrencies. There’s Ethereum chart below, where we
could find three zigzags. The biggest one is wave (ii). As you
can see, the wave (a) of (ii) is a leading diagonal pattern.
Wave ii (on the right) is a zigzag with the same structure
(wave ((A)) is a leading diagonal). Another zigzag is wave b (in
the middle of the chart), its wave ((A)) is far longer than wave
((C)). Sometimes such a disproportion happens, so now you
know what you can face with.

Upward Zig Zag with an Ending Diagonal in Wave

((c))
It’s also possible to have a zigzag with an ending diagonal in
wave C, you can see this case on the next chart. Wave ((a))
here is an impulse, but after wave ((b)) there’s an ending
diagonal in wave ((c)). As you already know, an ending
diagonal could form in a position of the last wave of a motive
wave (wave five of an impulse or wave C of a zigzag).

Downward Zig Zag with a Leading and Ending

Diagonals
The chart below represents such a rare case when motive
waves of a zigzag are formed like leading and ending
diagonals. Contracting diagonals are more common, but we
also could face a structure with expanding ones.

Downward Zig Zag

Sometimes wave C of a zigzag could be fast-moving as you
can see on the next chart. There’s a plain and clear structure
of the wave (a), but wave (c) consists of only three bars. This
usually happens when news or political events influence the
price movement.

Regular Flat Pattern

There’s a flat pattern in wave b on the chart below. This is a
regular flat because wave ((B)) is about 0.9 of wave’s ((A))
length. However, the wave ((C)) is pretty fast. There’s one
more interesting thing. There’re two zigzags in waves ((A))
and ((B)). The first pattern has wave (A) as an expanding
leading diagonal, which is quite rare. The next zigzag has a
contracting leading diagonal in wave (A) of ((B)), which is
more common.

Regular Flat with Ending Diagonal in wave C

Wave C of a flat pattern could be also an ending diagonal as
shown on the next chart. Wave (b) is shorter than wave (a), so
it’s a regular flat. However, an ending diagonal in wave (c)
finishes below the high of wave (a) that is how running flats
ends. As you can see, there’re some variations in each type of
flat patterns in the real market.

Expanded Flat Pattern

The last chart shows a perfect example of an expanded flat
pattern. Wave ((B)) is far longer than wave ((A)) and the
ending of wave ((C)) breaks the low of wave ((B)). The
subsequent bullish impulse in wave ((1)) confirms that a flat
pattern is over.

Conclusion
Identifying a flat or a zigzag pattern may be hard for novice
traders as they need to know a lot of variations of such
patterns. Although these patterns may seem complicated,
understanding them gives a trader a better understanding of
the global market structure. Thus, these patterns may be
useful in various trading techniques. Also, consider checking
our tutorials on ROC indicator and Aaron indicator to know
more about trading.

technical analysis trading skills

every trader should know

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2023-06-30 • Updated

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