How to Use Special Types of Triangles in Elliot Waves Theory
Our Forex Trading Academy has 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 trendlines that make the triangle. If the angle points towards a common point on the right side of the chart, it is said that the triangle is a contracting one. On the other hand, if the two trendlines are diverging, the triangle is an expanding one. Both types of triangles, contracting and expanding ones, are corrective in nature, despite the fact that they have five segments. Elliott found three types of contracting and expanding triangles, but, as well as those, triangles can be even further subdivided.
Identifying Special Types of Triangles
Traders know when 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 trendline 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 trendline. Special types of triangles differentiate themselves on the opposite trendline, namely on the a–c one. The thing is that such triangles actually do not have an a–c trendline, 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 do not fall into the categories of either classical contracting triangles or expanding triangles. However, if the triangle is not an expanding one, then it must be a contracting one, 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 trendline cannot be changed, as it marks the end of the triangle, the only thing that remains is to adjust the a–c trendline 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 an a–e Trendline
The triangles that fall into this category have, instead of the a–c trendline, a trendline that connects the end of the a-wave and the end of the e-wave. Usually, this kind of triangle is possible when the c-wave is much bigger than the a-wave. If this happens, the a–c trendline will actually diverge from the b–d one, and so the contracting nature of the triangle is not there. The only way to have a contracting triangle, therefore, is to actually draw the a–e trendline. As a rule of thumb, when compared with other contracting triangles, it is not possible for these ones to appear as b-waves in zigzags or fourth 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 an a–e trendline 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. Secondly, if a triangle does appear, it will be most likely be the last corrective phase of the whole complex correction.
Triangles with a c–e TrendLine
Another possible way to form a triangle when the a–c trendline is not showing a contraction in relation to the b–d one is to draw the c–e trendline. 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 tricky, though, as remember, all segments in a triangle are corrective ones. This 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 trendline makes sense when it is not possible to build the a–c one in such a way as to form a contracting angle with the b–d trendline. Moreover, not even the a–e trendline makes sense, so the only possibility left is to connect the c–e one. As was the case with the previous type of triangle, it is also not possible for this one to be part of the fourth 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 trendline.
Because of this aspect, such triangles almost always actually form one of the most powerful reversal patterns of them all: a head and shoulders pattern. If you think of how the head and shoulders pattern forms, and follow the rules of connecting the a–c and the c–e trendlines as described above, you’ll find 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 such as pennants are actually still contracting triangles.
With this article, we have 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 the possibilities for an expanding triangle to form are. To be more exact, the following article 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.