Elliott Waves Theory – Special Types of Triangles
Our Forex Trading Academy so far treated triangles in a few articles and you should know by now that triangles are either contracting or expanding. This is a characteristic that derives from the angle of the two trend lines that make the triangle. If the angle points towards a common point on the right side of the chart, it is being said that the triangle is a contracting one. On the other hand, if the two trend lines are diverging, the triangle is an expanding one. Both triangles, contracting and expanding ones, are corrective in nature and despite the fact that they have five segments, all of them are corrective in nature. Elliott found three types of contracting and expanding triangles, but, besides those, triangles can be even further subdivided.
Identifying Special Types of Triangles
Traders know a triangle is about to form or is in progress based on a series of three higher-highs or lower-lows that the market is forming. These are the prerequisites for a triangular formation in almost all cases. In other articles dedicated to triangles we said that the most important trend line is the b-d one in the sense that by the time it is broken, the triangle is considered to be completed and a new wave starts. This is true as well in the case of special types of triangles, as, like in any triangle, the key stays with the b-d trend line. Special types of triangles are differentiating themselves on the opposite trend line, namely on the a-c one. The thing is that such triangles actually do not have an a-c trend line as it is not possible to draw one while keeping the contracting nature of the triangle intact. Such triangles are only possible when the patterns are not falling in the classical contracting triangles nor expanding triangles categories. However, if the triangle is not an expanding one, then it must be a contracting triangle, so there must be a way to define it and use it in the overall count. Having said that, and knowing that the b-d trend line cannot be changed, as it marks the end of the triangle the only thing that remains is to adjust the a-c trend line in such a way that we do have a contracting pattern. To do that, there are two possibilities that define special types of triangles.
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Triangles with A-E Trend Line
The triangles that fall into this category are having instead of the a-c trend line, a trend line that connects the end of the a-wave and the end of the e-wave. Usually, this kind of triangles is possible when the c-wave is much bigger than the a-wave. If this is happening, the a-c trend line will actually diverge from the b-d one and therefore the contracting nature of the triangle is not there. Therefore, the only way to have a contracting triangle is to actually draw the a-e trend line. As a rule of thumb, when compared with other contracting triangles, these ones are not possible to appear as b-waves in zigzags or 4th waves in impulsive moves. The only places we can find such triangles are complex corrections. Speaking of complex corrections, even in such patterns, a triangle with the a-e trend line cannot form anywhere. First of all, it is not possible for any kind of triangle to be the first corrective wave in a complex correction. Second, if a triangle does appear, it will be most likely the last corrective phase of the whole complex correction.
Triangles with C-E Trend Line
Another possibility to form a triangle when the a-c trend line is not showing a contraction in relation with the b-d one is to draw the c-e trend line. This means one should know exactly where the end of the c-wave is, as well as the termination point of the e-wave. Such a thing may be a tricky one though as, remember, all segments in a triangle are corrective ones. It means that they could actually end with a triangle of a lower degree, and in this case, the end is not the highest or the lowest point in that segment. A triangle with a c-e trend line makes sense when the a-c one is not possible to build in such a way to form a contracting angle with the b-d trend line. Moreover, not even the a-e trend line doesn’t make sense, so the only possibility left is to connect the c-e one. Like it was the case with the previous type of triangle, it is not possible for this one as well to be part of the 4th wave in an impulsive wave or a b-wave in a zigzag. The only place it can appear is as part of a complex correction, either as one of the x-waves in such a correction or the end of the whole corrective move. One thing that both types of triangles described above have in common is the fact that one segment is very small in comparison with the rest of the triangle’s segments. This is what forces a trader to adjust the a-c trend line.
Because of this aspect, almost always such triangles are actually forming one of the most powerful reversal patterns of them all: a head and shoulders pattern. If you come to think of how the head and shoulders pattern is forming and follow the rules of connected the a-c and the c-e trend lines as described above, you’ll find out that the classical head and shoulders pattern, when it comes to the Elliott Waves theory, is actually a triangle. Triangles can be reversal patterns as well, even powerful ones, and this is the living proof that Elliott Waves theory incorporates all the classical continuation and reversal patterns in the technical analysis field. The head and shoulders example is just one example, as other patterns like pennants are actually still contracting triangles. With this article, we covered all the possibilities out there for a pattern to be considered a contracting triangle and the only thing that remains related to triangles is to discuss what tare the possibilities for an expanding triangle to form. To be more exact, the following article here will deal with how many types of expanding triangles exist and what to look for when trading them.
Other educational materials
- Trading Different Types of Extended Waves
- Placing Pending Orders When Trading with Elliott
- How to Trade 2nd and 4th Waves
- The All-Important B Wave Retracement
- What Are Corrective Waves?
- Trade Forex with Simple Corrections
Recommended further readings
- Applying Elliot Wave theory profitably. Vol. 169. Poser, Steven W. John Wiley & Sons, 2003.
- “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.