A zig-zag is a corrective pattern in the Elliott wave structure, generally labeled a-b-c and in it’s simple interpretation the key stays in the retracement level for the b wave in relation with the previous a wave. That means that if the b wave retraces below 61.8% retracement level of the previous wave a, then we are in a zig-zag.
This is important because a zig-zag has a structure of five-three-five for the a-b-c, meaning wave a of a zig-zag it is formed out of five waves of a smaller degree, wave b it is formed out of three waves of a lower degree, and wave c it is formed out of five waves of a lower degree as well.
As was the case for the leading and ending diagonal, in order to be considered a zig-zag, a price correction must follow the rules below:
- wave a must be an impulse or a leading diagonal;
- wave b can only be a corrective pattern (flat, triangle, another zigzag, etc.);
- wave b must retrace at least 20% of wave a by price;
- wave b usually retrace 38.2% of wave a;
- wave b cannot be bigger than ten times wave a in time;
- wabe b cannot retrace more than 61.8% out of wave a;
- wave c must be bigger that 90% of wave b;
- if wave a is a leading diagonal, than it is forbidden for wave c to be an ending diagonal;
- wave c must be smaller than five times wave b by price;
- wave a and wave c cannot have both sub waves five as failures;
The recordings that will come with this sub chapter will deal with a couple of examples in which I will look for each and every one of the rules above to be respected.