Fibonacci and Elliott
Fibonacci numbers are very important in trading financial markets as talking about trading without technical analysis is useless. Of course that one should consider fundamental analysis as well, but technical analysis is vital when no news are being release.
Fibonacci comes with retracement, expansion, and time levels, but knowing how to apply the levels in taking a trading decision is key. In our case, it will offer the best striking price possible if integrated correctly in the Elliott Waves Theory.
Elliott Waves and Fibonacci numbers and levels are a must in any trading decision so a correct understanding of both of them brings a competitive advantage to trader.
This educational project is designed to show the advantages of trading an Elliott Waves pattern, namely a zigzag, using Fibonacci numbers, as we’re going to discuss the structure of a zigzag, the structure of each wave part of the zigzag, and what makes it a zigzag.
When it comes to trading financial markets, the time element is one of the most important, if not the most important factor. It is one to say that a market is going to a specific level and an entirely different story to say when it is going to move there. This is what binary options trading is after all: saying where price is going and when it will be at a specific moment of time.
What is ZigZag?
Zigzags are corrective waves, or three waves structures and the key here stays with the b wave in the sense that it should not retrace more than 61.8% when compared with the previous wave a. There is a whole debate regarding this retracement level, whether it is referring to the end of wave b or are parts of wave b allowed to enter the territory beyond the 61.8%. I would say it is not that important and what a trader needs to know is that if there is a retracement that goes that much into wave’s a territory, than that retracement is most likely not part of a zigzag, so any possible trade should be scrapped.
There is a strong tendency among traders to look for an impulsive move when looking for a quick move to come as everyone is attracted by strong and powerful moves market makes. It should be noted though that these kind of moves are quite rare and what is most likely to occur is a zigzag and not an impulsive move.
Zigzags are even more powerful and fast-moving when compared with an impulsive move, for the simple reason that they are being formed out of two impulsive waves of a lower degree and the correction in the b wave is most of the times insignificant. In other words, if you’re wrong in interpreting a zigzag, then chances for the market to turn are quite small.
Comparison with Flat
When compared with the flat pattern, the zigzag is not classified by the way the b wave is retracing, but rather by the length of the c wave that follows. If that c wave is way more than wave a, then it is most likely that the whole zigzag pattern is part of a leg of a triangle or the entire leg of a triangle.
A zigzag is even more powerful when is followed by another one, as in this case market is forming a so-called double zigzag pattern and you can imagine the velocity on this one as basically it is formed out of four different impulsive waves of a lower degree and its main characteristic is that it is channeling really well, so corrections in the opposite direction are not bigger than the opposite side of the channel. This offers the perfect place for any binary option strike price as in a bearish double zigzag one should look to buy put options on the upper side of the channel while in a bullish double zigzag call options are recommended by the time market is retesting the lower side of a rising channel.
The maximum one can have is a triple zigzag and it must be mentioned that these are really rare. However, when they do happen to form, it is worth mentioning that the three zigzags in the sequence are different and do not resemble.
Simple or Complex Corrections
A zigzag can be part of a complex correction or it can be a corrective wave of its own. If it is part of a complex correction, then the counter move to follow should not go more than 61.8% in the opposite direction, while if it is a simple correction, it must be confirmed.