Corrective waves can be of different types, but the most complex form based on the various types it has is the flat pattern. A flat is formed out of three different waves, a-b-c and should have a structure of 3-3-5, in the sense that waves a and b are corrective, but of a lower degree, and the c wave should be an impulsive move, a five waves structure, and therefore to respect all the rules of an impulsive move.
The tricky thing with the elongated flats stays with the fact that such a pattern appears all the time as being the leg of a triangle or just a part of a leg or a triangle. This is important as any early sign of triangular formation can be of extreme importance when trading as, depending on the time frame the pattern appears on, we should look for important retracement levels characteristic for triangles.
One more thing to consider, and maybe the most important one, in the sense that market participants are ignoring this aspect most of the times, is the fact that the time element is not taken into consideration and this is one of the biggest mistakes a trader can make. And this is crucial when trading binary options when the expiration date is the element that makes the difference between an option that expires in the money and one that expires out of the money. Basically, the difference between being a profitable trader or one that still struggles when trading binary options.
Therefore, the rule says that the c wave in the elongated flat, or the five waves structure to the downside should take the same time (or approximately the same time) like it took for waves a and b together to form.
So, the logical thing to do is to go and take vertical lines on the chart for measuring the time element for both waves a and b and then projecting the outcome on the right side of the chart and that should be the decisive factor in interpreting if a flat is elongated or not.
If the time element is not confirming the pattern, then the flat is not elongated and all the implications of a contracting triangle in the making should be at least postponed.
The four recordings that are coming with this mini educational series we’re making here on binaryoptions.education are showing you clear examples of how an elongated flat looks like and how to interpret such a pattern.