# 3 Wave ABC Design

### Video Transcription:

Hello, traders. Welcome to the Elliott Wave Theory Course and the second module, Elliott Wave Patterns. In this lesson, we’re going to talk about zigzags. And zigzags are, in fact, three-wave patterns that you will find on corrective moves in trending markets, but let’s start by defining them.

In a bull market, a zigzag is a three-wave declining pattern or ABC. Well, it’s labeled ABC. And you will notice that it’s a declining pattern because it’s a corrective pattern on a bullish move. In a bear market, a zigzag is a three-wave corrective pattern also labeled ABC. Now, here’s what an ABC looks like on a bull market. This means that price has been trending up and we arrived to the peak or point X, and then we started the three-wave corrective move to the downside. Then, we have here, a buy zone for a continuation of the overall trend. And here we have the example of a bearish zigzag. This means the price has been trending down and then we have a low here at the X point. Then, we have a three-wave corrective move where we get to the point C and a sell zone where we are going to short this market. Okay?

Now, of course, you can trade the B leg of or the third wave of the ABC, or the zigzag pattern, but this, in fact, is a pattern that will give you super-powerful buy zones and sell zones. These ABC patterns are corrective designs, but they are found in trending markets, not necessarily after a five-wave pattern. This means that, for example, if you take this bullish zigzag, it is an ABC corrective move, but you will not necessarily need a five-wave bullish pattern before it for it to be valid. Okay? That’s the difference between the basic design and the zigzags. Zigzags will be found in trending markets and not necessarily in basic designs. In other words, these bearish and bullish zigzags will be corrective moves that will give us perfectly timed buy and sell zones. Even though it’s a simple three-wave pattern, it has to follow certain rules and characteristics for it to apply as one. Now, here’s where it gets a little tricky and where we’re going to use some Fibonacci levels and where it differs from the actual ABC pattern of the basic design.

So, the rules and characteristics of this pattern. The high or low of wave B can never go beyond point X. If the high or the low of wave B goes beyond point X, or it retraces more than 100%, this will mean that we are making a…well, if we are in a bullish market, we will be making higher highs and, in a bearish market, we will be making lower lows, which means that we are not in a corrective move, which means that we are not inside of, or at the beginning of a zigzag pattern. The high or low of wave B will ideally retrace between 61.8% and 78.6% or the first wave. This means that if we take, for example, a bullish market and we get to the point X, then we move down to the point A, the second wave will retrace, ideally, 61.8% to 78.6% of the wave XA. Now, the point C determines the buy or sell zone and it’s an extension of, ideally again, 127.2% and 161.8% of the first wave. The last wave and the first wave may equal in length and sometimes, well, most of the time they will be around the same length. Of course, we’re talking about pips or ticks and not bars. And, again, always look for conversions between pips, pattern, and trend.

And here is all the rules applied in one single pattern. You can see that here we were in an up-trending move, or in a bullish market. We got to the point X, which is the peak, or the high of the move, then we move down to the point A, breaking with the ascending structure that we were in, then point B retraced, ideally, 61.8% to 78.6%…I’m sorry, there’s a mistake here…78.6% of the first wave, and then we move back to point C. Here, in point C, is where we are going to find the power buy zone on this bullish zigzag, and it’s easy to calculate because it will be around 127.2% to 168.1% of the first wave. Okay? And, of course, these same ratios apply on a bearish zigzag.