A zigzag is the most deceivingly simple corrective pattern within the Elliott Waves Theory. And, for good reason.
When we discussed corrective waves within Elliott Theory, we introduced the notion of a zigzag for the first time: an a-b-c or a three-wave structure that has two impulsive waves and one corrective wave. Please note, that the b-wave should not retrace more than 61.8% of the previous a-wave.
A-waves and c-waves are impulsive, and the b-wave is the only one to show corrective activity. The reason why it can deceive investors is that a zigzag has little or no pullbacks. The b-wave retracement level is minimum 1% of the a-wave and rarely exceeds the 38.2% level. If it does, the market most likely will not form a zigzag.
Moreover, a zigzag is the only corrective wave that can resemble impulsive activity. Therefore, it is relatively easy for investors to get “lost” in counting the wrong way because the market moves fast in a zigzag pattern. Indeed, it resembles impulsive activity because it has not one, but two, impulsive waves in its structure. However, the overall pattern is corrective, not impulsive.
Here’s how it breaks down. What would you make of the following market move?
When the market advances or declines in such an aggressive way, many investors count it as an impulsive wave. However, this is simply a zigzag formation.
On the left of this image, we can see the correct interpretation, and on the right, we see a wrong count. Most investors apply the wrong count despite the rules of an impulsive wave not being respected: namely, the 3rd wave in an impulsive wave MUST be impulsive too, which is not the case here, as there is no apparent five-wave structure.
The zigzag on the left has two five-wave structures, and therefore two impulsive waves (a- and c- waves denoted in blue). Note, the b-wave’s retracement is so small that by the time the second impulsive wave begins, another powerful sell-off takes market participants by surprise.
Based on the length of the c-wave, three types of zigzag can exist:
- normal – the most common one; c-wave is between 61.8% and 161.8% of the a-wave,
- truncated – infrequent pattern; the c-wave is smaller than 61.8% of the a-wave,
- elongated – suggests a triangle in the larger cycle; c-wave is longer than 161.8% of the a-wave.
Take-aways:
- Three types of zigzag exist; normal, truncated, and elongated.
- The b-wave in a zigzag is smaller than 61.8% of the a-wave.
- A zigzag is the only corrective wave that resembles impulsive activity.
- Elongated zigzags indicate triangle formations.
