The Elliott Wave Running Flat is a rare 3-wave corrective pattern in the Elliott Wave Theory that offers considerable insights for traders who seek to make informed trading decisions. In this article, we will delve into the mechanics of the Elliott Wave Running Flat, its potential benefits, and drawbacks, as well as how it can be used in trading.
What is the Elliott Wave Running Flat?
As per the Elliott Wave Theory Running Flat is a 3-wave corrective pattern that is seldom seen in the market. The pattern consists of internal subdivisions of 3, 3, and 5, which are labeled as A, B, C. Waves A and B can have any type of corrective structure, including zigzag, flat, double three, or triple three. In contrast, wave C is always a 5-wave structure, which is either a motive impulse or an ending diagonal pattern.
It is essential to note that in the Elliott Wave Running Flat Pattern, wave B terminates well beyond the beginning of wave A, similar to an expanded flat. However, wave C falls short of the level at which wave A ended, which makes it “running.” The running flat wave C is usually completed above the Fibonacci extension of 100% -123.6% of A related to B and then continues with the larger trend or produces a reaction of at least 3 waves if the larger trend doesn’t resume.
The running flat has specific guidelines that include a corrective 3-wave move labeled as ABC, with subdivisions of waves A and B in 3 waves. Additionally, the internal structure of wave C is in 5 waves impulse/diagonal, and the subdivisions of waves A and B can be in any corrective 3 waves structure, including zigzag, flat, double three, or triple three. Wave B of the 3-3-5 pattern terminates beyond the starting level of wave A, similar to an expanded flat, and wave C fails to travel its full distance, falling short of the level where wave A ended. Momentum divergence should also appear in Wave C, and the running flat should follow a Fibonacci ratio relationship, where Wave B equals 123.6% of Wave A, and Wave C equals 61.8% – 100% of Wave AB.
Elliott Wave Running Flat Strategy
To apply this pattern, traders should first look for the 3-3-5 internal subdivisions labeled A, B, C. Waves A and B can have any type of corrective structures, but wave C is always a 5-wave structure, either a motive impulse or an ending diagonal pattern. It is also important to note that Wave B should terminate well beyond the beginning of Wave A, and Wave C should fail to travel its full distance, falling short of the level at which Wave A ended.
Once the pattern is identified, traders can look for a momentum divergence in wave C and confirm that the running flat wave C is completed above the Fibonacci extension of 100% -123.6% of A related to B. Finally, traders can continue with the larger trend or expect a reaction of at least 3 waves if the larger trend does not resume. By following these guidelines, traders can use the Elliott Wave Running Flat pattern to help identify potential market reversals or trends.
Buy Signal
- Look for the Elliott Wave Running Flat pattern in the market, which should consist of a corrective 3-wave move labelled as ABC, with the subdivisions of wave A and B in 3 waves and an internal wave C in 5 waves impulse/diagonal.
- Check that wave B of the 3-3-5 pattern terminates beyond the starting level of wave A as in an expanded flat, and wave C fails to travel the full distance, falling short of the level where wave A ended, indicating a running flat.
- Confirm that momentum divergence is appearing in wave C of the pattern.
- Enter a long position when the running flat pattern is completed above the Fibonacci extension 100% -123.6% of A related to B, and then continue with the larger trend or produces a reaction of at least 3 waves.
- Place a stop loss below the low of the last swing low before the pattern’s completion or according to your money management strategy.
- Take profits when the larger trend resumes, or as per your trading plan.
Sell Signal
- Look for the Elliott Wave Running Flat pattern in the market, which should consist of a corrective 3-wave move labeled as ABC, with the subdivisions of wave A and B in 3 waves and an internal wave C in 5 waves impulse/diagonal.
- Check that wave B of the 3-3-5 pattern terminates beyond the starting level of wave A as in an expanded flat, and wave C fails to travel the full distance, falling short of the level where wave A ended, indicating a running flat.
- Confirm that momentum divergence is appearing in wave C of the pattern.
- Enter a short position when the running flat pattern is completed below the Fibonacci extension 100% -123.6% of A related to B, and then continue with the larger trend or produce a reaction of at least 3 waves.
- Place a stop loss above the high of the last swing high before the pattern’s completion or according to your money management strategy.
- Take profits when the larger trend resumes, or as per your trading plan.
Elliott Wave Running Flat Pros & Cons
Pros
- Can provide traders with a clear wave count in a corrective pattern.
- Can help identify the end of a correction and the resumption of a larger trend.
Cons
- Can be difficult to identify and differentiate from other corrective patterns.
- Can sometimes provide false signals or invalid wave counts.
- Relies heavily on the ability of the trader to accurately identify and interpret wave patterns.
Conclusion
In conclusion, the Elliott Wave Running Flat is a strategy that can help traders identify potential trend reversals or continuation. It is a rare but useful corrective pattern for traders who rely on Elliott Wave analysis. It can provide valuable insights into market trends and help traders make better trading decisions. However, like all trading strategies, it is not foolproof and requires careful consideration of risk management and market conditions.
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