This month I want to take a look at the very common Triangle pattern.

You should be aware that in the Wave Principle we have three types of triangle:

  • Contracting (most common)
  • Expanding (least common)

[If you are new to Elliott Wave, Madden has written a comprehensive series on using this methodology in your trading. Get started with this article.]

Within the contracting variety wave “B” can often trade beyond the origin of wave “A”, in such case this is referred to a Running Triangle. The WP offers a way of quantifying the triangle like no other form of technical analysis and for such a common pattern found in all markets at every time frame this benefit alone can be worth it’s weight in Gold ! (Please refer back to EWP Part Three Corrective Waves for more information on the Triangle.)

Triangles form in times of indecision and are a structure required to use up time whether it is before a big move has taken place or prior to a big move taking place. As much as they destroy the emotional well-being of many traders and investors they bring with them a lot of information for those willing to learn and understand them.

Once price has offered up enough information for us to considering we have a potential triangle on our hands you have to always be aware of the two possibilities

“Single Triangle”- Fourth wave Position or “Internal Triangle” – Wave “B”,”E”, “X” “Y or Z”

As we know second waves can never unfold as a triangle and fourth waves commonly unfold as a triangle, so triangles would be high on our list of expected structures after an impressive third wave extension. This is exactly how I have been looking at USDJPY lately.

MaddenFig1Nov2013.jpg

From the weekly chart above in Figure 1 you can see price appears to be rising off the 2011 low impulsively and is adhering too many of the rules and guidelines discussed in previous articles. So now that we have a series of contracting highs and lows let’s put this price action into some context.

MaddenFig2Nov2013FINAL.JPG

From the daily chart you can see how I am labelling the single contracting triangle for Intermediate wave (4). Minor wave E has undershot the A-C trendline, this happens regularly but price cannot trade a pip below the wave C low or this interpretation is negated. Also from this chart you can see I am considering Intermediate wave (5) has begun with Minute waves [i] & [ii] of Minor 1 of (5) potentially in place. We need a powerful third wave from nearby levels trading through 100.611 to confirm this count.

The other scenario that a lot of people fail to consider is the internal triangle. While this does not occur as often as the single triangle in the wave four positions you should be aware of its existence and consequences should it unfold. What happens here is price will thrust out of the triangle in the opposite direction to what most are expecting only to reverse back again in the original direction. This along with the contracting price action of the triangle itself will have whipsawed the participants so much that they will ultimately miss the major move.

MaddenFig3FINALNov2013.JPG

The alternate count in figure 3 shows a possible double zigzag unfolding W-X-Y where Minor “X” unfolds as the internal triangle. This would allow for a thrust lower from the triangle in the second zigzag for Minor wave Y.

Knowing what to expect on the right side of the chart is key. Eventually as a trader you accept that you are not going to catch every move and that the market will pull the rug out from under you now and then but taking the time to study and learn these reoccurring patterns of price action can help you to deal with the unexpected and sooner or laterit does not seem so unexpected any more.

This is definitely a market worth keeping an eye on over the coming days to weeks, this is the map I will carrying.

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Trade Set-Ups With Elliott Wave by Michael Madden of Elliott Wave Ireland

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