Triangles are one of the most recognizable patterns in the market, but one of the toughest to spot as it is forming. As it forms, it provides clear price compression as well as nice clean tradable options as long as you know the rules.
As with flats, there are several different kinds of triangles, each with their unique characteristics. Learning to anticipate when and how triangles form is a key part to leveraging Elliott Wave in your trading strategy.
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All triangles have five waves that have a 3-3-3-3-3 pattern and are labeled A-B-C-D-E. Symmetrical triangles point in a flat, horizontal direction and continue the trend from which the originated.
A triangle always subdivides into five waves.
At least four waves among waves ABCD and E each subdivide into a zigzag or zigzag combination.
Wave C never moves beyond the end of wave A, wave D never moves beyond the end of wave B, and wave E never moves beyond the end of wave C. The result is that going forward in time, a line connecting the ends of waves B and D converges with a line connecting the ends of waves A and C.
A triangle never has more than one complex sub wave, in which case it is always a zigzag combination or triangle.
Usually, wave C subdivides into a zigzag combination that is longer lasting and contains deeper percentage retracements than each of the other sub waves.
Sometimes, wave D subdivides into a zigzag combination that is longer lasting and contains deeper percentage retracements than each of the other sub waves.
Sometimes one of the waves, usually wave C, D or E, subdivides into a Symmetrical, Ascending, or Descending triangle. Often the effect is as if the entire triangle consisted of nine zigzags.
About 60 percent of the time, wave B does not end beyond the start of wave A. When it does, the triangle is called a running triangle.
Ascending and Descending Triangles
An ascending triangle is a bullish pattern that repeatedly rejects at a high price, but continues to create higher lows until it breaks to the upside. This is often referred to as a bull pennant. This pattern also continues the trend and is labeled as a (3-3-3-3-3) structure.
A descending triangle is also labeled A-B-C-D-E with a 3-3-3-3-3 pattern. It finds support at a low price point, but continues to bounce off the low price while creating lower highs. This is also known as a bearish pennant and continues the trend to the downside.
Many of the rules and guidelines from the symmetrical triangle and include the following:
An Ascending or Descending Triangle has the same characteristics as a contracting triangle except that waves B and D end at essentially the same level.
When wave five follows a triangle, it is typically either a brief, rapid movement or an exceptionally long extension.
Similar to flats, triangles can sometimes extend beyond their previous waves. Expanding Triangles create high highs and lower lows, which is a rare pattern, but can easily catch traders by surprise. The expanding triangle patter continues the trend and is also a 3-3-3-3-3 structure.
Most of the rules for expanding triangles are the same as symmetrical triangles with these key differences: Rules
Wave C, D and E each moves beyond the end of the preceding same-directional sub wave. The result is that going forward in time, a line connecting the ends of wave B and D diverges from a line connecting the ends of Waves A and C.
Sub waves B, C and D each retrace at least 100 percent but no more than 150 percent of the preceding sub wave.
Sub wave B, C and D usually retrace 105 to 125 percent of the preceding sub wave.
No sub wave has yet been observed to subdivide into a triangle
Running triangles are almost identical to symmetrical triangles. The exception is that the B wave breaks over the start of the A wave, which appeared to create an expanded flat, but then contracts towards an apex. As this is a triangle, it has the five-wave 3-3-3-3-3 pattern.
Running triangle has the same Rules and Guidelines governing the Symmetrical Triangle. The only difference is that the B wave extends past the start of the A wave, like an expanded/running flat correction.