Triangles Pattern Trading

Triangles

A final complex corrective structure is the Triangle. In contrast to classic technical analysis which has no structure for the Triangle, Elliott's version is strict in requiring five sets of ABC patterns and generally (but not always) with contracting peaks and troughs (as shown in Figure 2.13).

Figure 2.13 A Triangle Correction

Note that each leg of the Triangle comes in three waves or may come as a combination of three waves, as Double Zigzags or Triple Threes. The Wave b of each leg can also be any of the simple or complex corrective structures. They tend to be the most complex of all wave structures as they basically represent a conflict between bulls and bears, with neither camp being able to force an extension of their sentiment.

In Figure 2.14, price rallied in Wave (A) and then fell into a sideways consolidation within converging peaks and troughs. It is not always obvious that each leg of the Triangle develops in an ABC structure (or combination of three- wave moves), but these should be more obvious in the lower time-frame chart. Once the five legs are complete in Wave Ae, this completes Wave (B) and triggers an extension high in Wave (C).

Figure 2.14 A Triangle within a Wave (B) Position in a Zigzag Higher in USDCAD

Judging When a Complex Correction is More Likely to Occur

Clearly the array of corrective structures can be quite dismaying and generates some uncertainties over just what may occur. Indeed corrections are a lot more complex due to the fact that more two-way views are being expressed by the market, possibly due to inconclusive economic releases or the market is awaiting such a release.

However, there are clues that are quite straightforward if these occur in particular areas of the wave structure. In Chapter 4, I describe the use of Fibonacci and harmonic ratios to determine high-risk areas where corrections should end. For example, if we are looking at a correction in Wave 4 which has a high chance of providing a 50% retracement, if the first ABC move has retraced only 20% of the length of Wave 3 then there & apos; a much greater chance of seeing a Double Zigzag or Triple Three. However, if the first ABC move retraces a full 50% then we must be alerted to the possibility of a Flat, Expanded Flat, or Triangle in the Wave 4 position.

We must also be aware of the structure of price development to confirm whether it is consistent with an impulsive structure (and measurement) or whether it is consistent with another three-wave move which will imply a corrective structure.