The use of Fibonacci numbers when binary options trading cannot be underestimated as no technical analysis can truly occur without their use. While fundamental analysis has a role to play, technical analysis is of the essence when there is no major news on the horizon for release. Fibonacci tools include expansion, time levels and retracement, however knowing how to apply these levels when making trading decisions is essential to success. Fibonacci numbers are able to reveal the best possible striking price for a trade, but only when correctly integrated with the Elliott Waves Theory and understanding how this is done is essential for any trader.
One of the Elliott Waves Patterns which can be traded using Fibonacci numbers is the zigzag pattern. A zigzag pattern is a corrective wave, or 3 wave structure, with the key element being the B wave which should not retrace more tha the 61.8% level as compared to the prior wave A. Although there has been some debate about this particular retracement level and whether it refers to the ending of Wave B or whether parts of the B wave should be able to enter the territory past the 61.8% level, what is most important to bear in mind is that if a retracement occurs that goes so far into the A wave’s territory, the retracement is not likely to be part of a zigzag pattern and therefore any planned possible trade should be disregarded.
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Impulsive Moves and Zigzag Patterns
Traders have a strong tendency to look out for impulsive moves when they are looking for a rapid move to come as they are attracted by the powerful and strong moves in the market. They should be aware, however, that moves of this type are pretty rare, and most likely, it is a zigzag pattern which will be forming and not an impulsive move.
When they are compared with an impulsive move, zigzags are even faster moving and even more powerful as they are formed from 2 impulsive waves of lower degree, with the B wave correction usually proving insignificant. Therefore, if you make a mistake in interpreting a zigzag pattern, the changes for the market to make a turn are fairly small.
As compared to a flat pattern, the zigzag cannot be classified by the way in which the B wave is retracing, but instead by the length of the C wave which is to follow. If the C wave is considerably longer than Wave A, it is likely that the entire zigzag pattern is forming part of a triangle’s leg or even the complete leg of a triangle.
Double and Triple Zigzags
Zigzags are even more powerful when they are followed by a second one, and this is called a double zigzag pattern. A double zigzag is formed from 4 different lower degree impulsive waves and its primarily characteristic is that is channels extremely way and therefore corrections in the opposing direction will not be bigger than the channel’s opposite side. This is the ideal place for a binary option strike price and in the case of a bearish double zigzag pattern, a trader should consider purchasing put options on the channel’s upper side, while in the event of a bullish double zigzag pattern, the trader should place call options by the time the market retests the rising channel’s lower side.
The maximum pattern of this type is the triple zigzag, however these only occur very rarely. When they do form, it is important to note that all 3 zigzags in the pattern will be different and will not resemble each other.
A zigzag may either be a corrective wave in its own right or part of a complex correction. If it is the latter, the counter move which will follow should not go further than 61.8% to the opposite direction, while it must be confirmed if it is a simple correction.
Other educational articles
- Wedges That Break The Other Way: How To Win When Other’s Lose
- The Elliott Waves Theory Impossible Without Fibonacci Tools. Here’s Where And How To Use Them.
- How To Use The Principle Of Alternation To Profit From Differences Between Corrections
- Elliott Waves – Tips And Tricks For Trading 3rd Waves Extensions Impulsive Moves
- Elliott Waves – Insights For Trading The 2-4 Trend Line Break To Increase Your Profits
- Elliott Waves – The Implications Of A Running Correction To Reduce The Risk Of Painful Trading
- Channelling Is One Of The Most Profitable Strategies In Binary Options
- “Multi-classifier based on Elliott wave’s recognition.” Volna, Eva, Martin Kotyrba, and Robert Jarusek. Computers & Mathematics with Applications 66, no. 2 (2013): 213-225.
- “Elliott Waves Recognition Via Neural Networks.” Kotyrba, Martin, Eva Volna, David Brazina, and Robert Jarusek. In ECMS, pp. 361-366. 2012.