ZigZag – the Definition
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Basically, the ZigZag is the corrective pattern and it should be marked with the letter and it is appearing the a-b-c structure. For some it may seem that is similar to the flat pattern but the difference between the flat pattern and the ZigZag pattern is the fact that the Fibonnaci levels of retracement for the wave b is slightly different between the flat pattern and the ZigZag pattern.
Besides that, another difference is the fact that the structure of the wave a is different with these two corrective patterns. When it comes to the flat pattern, the wave a is actually having the corrective nature. However, when it comes to the wave a in ZigZag pattern, it is having the impulsive nature. Taking into the account that the price is consolidating for the majority of time, any trader should expect that patterns like the two mentioned previously will appear no matter what type of the corrective nature the price pulls off.
When the price is forming the triangle, then, traders should consider that the legs of the triangle that appeared are corrective and that they should be created by the corrective waves that appear on a lower degrees, or the ZigZags, flats or some other type that was derived from these two patterns. If it happens that the triangle that appeared is expanding that means that the corrective waves that appear in that moment are most likely to be the ZigZags.
61.8% Rule – the Level of Retracement for the wave B
When a trader is actually trading binary options with the ZigZag pattern, the most important issue that he or she needs to keep in mind is the level of the retracement for the wave b. In the case of wave be, the level of retracement should be higher than 61.8% in situation when the wave b is compared to the wave b. This issue is very important, especially in the cases when the further phases of the trader appear, for example, when we should buy the call options in the case of the uptrend and after we had the five waves structures for the waves and when the wave b is not having the retracement level bigger than 61.8% and when the wave c is part of the five wave structure as well.
Because of that, it can be said that the ZigZag pattern, while it is marked with the a-b-c should have the structure of 5-3-5 for all those waves and this is obligatory and it cannot be changed.
Determining the Striking Price
ZigZag patterns are actually very powerful and important patterns because as such they represent the corrective wave that is very similar to the impulsive activity. Occasionally, the ZigZag pattern is even more powerful than the impulsive action, but the ZigZag patter can also be described as a very dangerous pattern for fighting the flows because when you think of it, the ZigZag pattern has been created by two impulsive actions of a lower degree. Because of that, the retracement levels of the corrective waves are much smaller and basically they bear no significance and if a trader attempts to actually pick a top or a bottom in that kind of pattern, it may be proven to be a very bad move.
Additionally, when it happens that the ZigZag pattern is actually channeling very well, the implication that lead to the complex correction are growing bigger and at the moment when the price actually hits the other side of the given channel that should be the moment when traders should find the striking price that they have been looking for so quite some time and that action should actually initiate the end of the correction on the lower degree as well as the start of the new impulsive move.
ZigZag and Complex Corrections
If happens that the trend is formed out of two or three ZigZags, no matter if that trend is actually the bullish or the bearish trend, then the complex correction will appear and it will have one or even two very small x waves on the two or three ZigZags that are creating the trend. When the previously described action happens, we are actually talking about the minimum of four and the maximum of six moves that are impulsive or of a lower degree so you will be able to image what would be the impact of attempting to pick a top or a bottom.
In this case, the extremely importance is the retrace for the wave b that should retrace back into the territory of the wave a that came previously, even if it happens only slightly. This is not debatable, so to say and it has to happen. Additionally, traders should also keep in mind that unlike the flat patterns, ZigZag patterns should include the wave c that is actually moving even beyond the end of the wave a. One good use of this that the trader might have in this case is the help that it provides in the process of reaching the decision on buying the call or the put options as well as it provides information when the given move is considered done.
Flats vs ZigZags
When it comes to the flat and ZigZag patterns, it need to be said that the ZigZag patterns are usually the most powerful and they are very easy to comprehend because according to the popular opinion there are only three types of this pattern and that depends on the length of the wave c that appears in this pattern. The normal pattern is the most common and the one that is present the most because the price with this trend has the tendency of travel equal lengths for both waves, c and a.
Once again it is important to emphasize that just like for any other patter and the level of resistance, the bigger the time frame is the resistance and the support get stronger and this is also applicable on ZigZag patterns as well – the bigger the time frame is, the implications and the expiration date for the given options should be stronger and longer. When it comes to the moment when the bullish ZigZag patterns appear, that moment is the best moment to buy the call options before the wave c is actually completed. On the other hand, when the bearish ZigZag patterns appear we should buy the put options. However, be careful with the time frame on which the pattern is being created because the time frame is crucial for the best possible expiration date.
After you had the opportunity to read about the issue mentioned before, we would like you to invite you to check out two video recordings that will be available with our education series project because it will provide you with the additional information about how to trade with binary options based on the patterns like ZigZags as well as the basic information about how to identify the ZigZag patterns.
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