Stock market flat guideline

A flat pattern is a chart pattern belonging to Elliott Wave Theory of trend continuation. Flat patterns are patterns that originate from trend corrections.

Simplifying, Elliott’s Wave Theory indicates that financial assets move in five-wave or five-move trends.

Three of those movements are the ones that set the trend and two the stops of that trend. In such a way that in an uptrend there will be five waves. Three up and two down. On the contrary, in a downtrend there will be three downward movements and two upward movements.

Graphical representation of a flat pattern

A graphic scheme that represents this very well would be as follows:

Flat guidelines are corrective figures. Therefore, the flat guidelines will be given in waves 2 and 4. Since waves 2 and 4 are the waves that mark a break in the dominant trend. These corrective guidelines consist of three movements (A, B and C). The flat guidelines look like the following:

Go ahead that the flat pattern is not the only pattern that occurs in corrective waves. There are other types of patterns that the Elliott Wave Theory includes. For example, the zigzag

Flat guideline types

According to Nelson Elliott, creator of the Theory, there are three types of flat patterns. Strong flat pattern, normal flat pattern and weak flat pattern. Make it strong, normal, or weak.

  • Strong flat pattern

Wave B exceeds 100% of the size of A, thus exceeding the maximum set by the beginning of it. Wave C runs 100% of Wave B and even less. But in no case does it exceed the minimum marked by the end of A. A strong flat pattern indicates a strong trend.

  • Normal flat pattern

Wave B reaches a size between 81% and 100% of A without exceeding it. Wave C runs between 100% and 138.2% of Wave A. A normal flat pattern indicates a well-established trend.

  • Weak flat pattern

Wave B falls between 61.8% and 80% of the size of A. Wave C breaks the minimum marked by the end of wave A. It usually runs between 100% and 138.2% of the size of A .

In conclusion, the flat guideline is one of the most used and reliable charting figures to operate in the financial markets. So much so, that some analysts, without using Elliott’s Wave Theory, use this pattern to analyze the evolution of price.

 

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