When it comes to using Elliott Waves Theory and corrective waves, trading complex corrective waves is probably one of the most tricky strategies. A complex correction means that the price is forming more than corrective waves such as flats, zigzags or triangles, and being aware of when to look out for corrective waves is essential.
In trading binary options, the most important thing is not the striking price, but the expiration date, because if it is happening to be wrong on the striking price (basically when you buy the option) but the expiration date is long enough to cover until the complex correction ends, then your option would be safe and will expire in the money still.
What are the Differences Between Double and Triple Zigzags?
Two of these complex corrections are double and triple zigzags. Although these are similar, there is a difference between them – the double zig zag is made up of two different zigzags that are connected by an intermediate x wave, while a triple zigzag is composed of three zigzags joined by two x waves.
If the zigzag corrective wave is forming following a bullish trend, call options are the preferred choice, while put options are the best choice if the zigzag corrective wave follows a bearish trend. Of course, this is a very simplistic approach, and more attention is required to develop a full understanding of what to look out for and which approach to adopt in these situations.
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How to Trade With Zigzags
When trading either a double or triple zigzag pattern, the first step is to draw a regular trend line from the start of the zigzag to the end of the B wave. Following that, an identical length trend line should be placed at the end of the A wave to create a channel that makes a forecast. When this rising channel is formed, call options should be bought by the time the market tests the channel’s lower side and by the time it tests the channel’s upper side, put options should be bought. The move which tests the opposing side of the channel is a connective wave, or x wave, that is part of the double or triple zigzag complex correction.
An investor should purchase put options with a bigger expiry period than the previously purchased call options by the time the price is reaching the channel’s upper side in the case of a rising trend, and conversely, in the case of a bearish channel, once the market reaches the channel’s lower side following completion of the x wave, this is the right time to purchase call options.
Investors should be aware that the triple zigzag pattern very rarely occurs, however the double zigzag pattern is more common, and it is especially seen when charting currency markets.
By the time the channel has been broken, the sign that the entire pattern is either about to be completed or has already been completed will have been given. This means that call options should be purchased at the break of a falling channel or put options should be purchased at the break of a rising channel.
The time frame in which these patterns are being formed will give the expiry date for trading these patterns. For example, if you see a double zigzag pattern forming on an hourly chart, end of day expiry options are able to be traded as well as those with hourly expiry dates if the striking price is at the end of the x wave. Among all of the Elliott Waves Theory patterns that can be traded, double and triple zigzags are those in which the price is travelling at speed as a zigzag is formed from two impulsive moves.
Other educational articles
- Introduction to Japanese Candlestick Formations
- What are Wedges in Binary Options Trading?
- Introduction to Fibonacci Retracements
- What is the Flag Pattern in Binary Options?
- What is the Ascending Triangle Pattern in Binary Options?
- “Zigzag Patterns.” In Technical Analysis for Algorithmic Pattern Recognition, pp. 85-126.Tsinaslanidis, Prodromos E., and Achilleas D. Zapranis, Springer International Publishing, 2016.
- “The Classical Figures.” In Basic Technical Analysis of Financial Markets Di Lorenzo, Renato, pp. 123-134. Springer Milan, 2013.