A flat is considered to be a corrective wave, or being part of a corrective wave, and it is generally having an a-b-c structure, with the three-three-five inner structure for the waves of a lower degree.
In order for a price structure to be characterized as being a flat pattern, it needs to follow two simple rules:
- wave b must retrace at least 61.8% of wave a;
- wave c must be at least 38.2% of wave b.
- In a flat, there are a couple of rules that price should respect, beside the two rules stated above, and they are:
- wave a can be any corrective pattern except a triangle;
- wave b can be any corrective pattern except a triangle;
- wave b is less than two times the price movement of wave a, including internal points of wave b;
- wave b must be less than ten times wave a;
- wave c must be an impulse or an ending diagonal;
- wave c must share some common price territory with wave a;
- wave c must be maximum two times when compared with the longest wave between the previous two (wave a and wave b);
- wave c must be less than three times the price distance of wave a;
There are many flats types under the Elliott Waves Theory and I am not going to cover them all here, but will take a look at common, irregular and elongated flat. All types of flats should respect the rules above.
In a common flat, all of the waves are approximately equal in price. In other words, wave b should not be more than 100% of wave a, but must retrace at least 81% of wave a. Also, wave c must retrace all of wave b. Wave c should move slightly beyond the end of wave a, but not by more than 10% or 20%.