Rules for Flat Correction - ABC Wave Correction

Next, we will learn what are the various rules and guidelines to identify Flat Correction?

Flat correction:

In flat correction, Wave A and Wave B will have an internal structure of 3 waves. Wave C will have an internal structure of 5 waves.

Rules for Flat correction 

Rule 1: Wave A should be a 3 wave structure. 

Rule 2: Wave B should be greater than 61.8%of Wave A. 

Rule 3: Wave C is greater than 38.2% of Wave A

Rule 4: Rule of alteration: it states that “adjacent or alternate waves of the same degree should be different and non-matching in as many ways as possible”. In flat correction Wave A and Wave B will alternate with respect to following:

Price: Alteration will not be seen in price as the Waves A and B are similar in price.

Time: If wave A is “n” units of time then: 

1. Wave B will be less than or equal to 61.8% of “n” OR
2. Wave B will be greater than or equal to 161.8% of “n” 

Subdivision: The number of subdivisions will show alteration in Wave A and Wave B

Pattern: The type of pattern will show alteration in Wave A and wave B. Wave A is an impulse and wave B is a correction. 

The image above shows the Flat pattern formation in Bajaj Finance on a daily time frame.

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Here we can see the pattern adhering to all the rules of  the Flat pattern.

• Rule 1: Wave A is a 3 wave structure 
• Rule 2: Wave B is greater than 61.8% of Wave A
• Rule 3: Wave C is greater than 38.2% of Wave A
• Rule 4: Wave A and Wave B are obeying the rule of alteration (price, time and pattern alteration)