Understand Different Types of Expanding Triangles
We have seen that contracting triangles are of three types, and the same thing is true for expanding triangles. The only difference is that these expanding triangles appear less often than the contracting ones. However, when it comes to some of the types of expanding triangles we’re going to cover in this article, they’re not that rare, and they do form, especially on the Forex market. The thing is that the Forex market, being so liquid, is sometimes tied up in so many ranges that triangles of all types are forming. By now you’re probably wondering why there are so many articles in our Forex Trading Academy dedicated to the triangular formation. Well, the answer is, it’s exactly because they are so common! Elliott found more than 10 different types of triangle, and based on their characteristics, they appear in different places in the overall Elliott Waves count.
Returning to expanding triangles, as a brief review, they are three-wave structures, in the sense that all five segments of the triangle are corrective ones, and they appear most likely as part of complex corrections. (For the definition of a complex correction, please refer to the article dedicated to it.) As with any other triangle, expanding or not, the key remains with the b–d trendline, as by the time this line is broken, the whole pattern is considered to be complete. This b–d trendline is usually easy to identify as it needs to be a clean one. It means that no parts of the c-wave or the e-wave should break this trendline before the triangle’s completion.
Three Types of Expanding Triangles
Following the contracting triangles lead, in order to identify the types of expanding triangles a market can form, the thing is to start from the very basic definition and then to apply the changes. So, if a contracting triangle, a classical type, has each of the segments of the triangle smaller than the previous one, then in the case of an expanding triangle, logic dictates that each of the segments should be bigger than the previous one. And this leads to the first type of expanding triangle Elliott found!
Horizontal Expanding Triangle
A horizontal expanding triangle is, above all, expanding on the horizontal. Keep in mind that each of the legs here is bigger than the previous one, and, as mentioned in other articles here on the Forex Trading Academy, such moves are really vicious, especially if the triangle forms on longer timeframes, such as daily charts and longer. Such a triangle is actually a result of a period of uncertainty that characterises a currency pair. You have to remember that a currency pair moves based on the differences between the two economies the currencies represent. This means that sometimes monetary policies between the two jurisdictions may differ so strongly that, no matter what the economic release is about to say, the market is undecided on the next movement, and only fake moves will govern the Forex pairs. It is very likely that this kind of an environment is the one that leads to the formation of an expanding triangle. However, out of all expanding triangles, the horizontal one is the rarest form possible. Having each of the segments bigger than the previous one is not that common, so if you ever witness such a triangle, chances are that you’re wrong and the market is forming something else. The rules of a triangle should be respected, though, even for this kind of triangle.
Irregular Expanding Triangle
In order for us to correctly show what an irregular expanding triangle looks like, the thing to do is to go back to the definition of an irregular contracting triangle: the one that forms when the b-wave is bigger than all the other segments in the triangle. If that is valid for a contracting pattern, it means that in an expanding pattern things should be exactly the opposite. We therefore have the definition of an expanding triangle: a triangle in which each of the legs is bigger than the previous one, with the b-wave being the only exception. Such a triangle is far more common than the horizontal type, and the expanding nature of the two trendlines is even more visible. This is because the b-wave is much smaller than the a-wave.
Running Expanding Triangle
When compared with the running contracting triangle, this one appears more often. The running concept is the same, though: The triangle will end above or below the end of the previous wave(depending on whether the triangle is a bullish or a bearish one). This running feature is often misunderstood by traders, but this doesn’t make it appear any less often. Knowing that it can form is a huge competitive advantage for any trader. In order to define a running expanding triangle, we should again start from the contracting type, and do things in exactly the opposite way. Following those steps, a running expanding triangle is one that has the b-wave as the smallest segment of the five that make the triangular formation; the d-wave smaller than the c-wave, and the e-wave bigger than the d-wave. Building such a pattern may sound like a complicated thing from reading the above description, but in reality, it is one of the most common things that forms on the Forex market, no matter what the timeframe. If you correctly build this triangle, you’ll end up with a series of three lows (if the triangle is a bearish one) or three highs (if the triangle is a bullish one). How many times have you looked at a chart only to see a series of three higher highs or lower lows forming before the price reverses abruptly? That series is nothing but a running expanding triangle!
With these triangles explained here, we have covered all the possibilities Elliot found for triangular formations. They are really important when counting waves, as they form quite often. Actually, most of the complex corrections the market makes (and complex corrections form more often than simple ones) have at least one triangle in their componence. Such a triangle can be either a contracting or an expanding one, and we have listed here all of the possible types that may form. Regardless of the type of triangle, though, one thing should matter above all: by the time the b–d trendline is broken, we should look for trading in the opposite direction, placing a stop loss at the end of the e-wave.
Other educational materials
- The All-Important B Wave Retracement
- What Are Corrective Waves?
- Trade Forex with Simple Corrections
- Complex Corrections in Elliott Waves Theory
- Types of Flat Patterns
- Types of Zigzag Patterns
Recommended further readings
- International trade and foreign investment: substitutes or complements. Kojima, K. (1975). Hitotsubashi journal of economics, 16(1), 1-12.
- “The pattern of international trade among advanced countries.” Kojima, Kiyoshi. Hitotsubashi Journal of Economics 5, no. 1 (1964): 16-36.