Contracting Triangles

[tradingwizzard 10]

One of the most common forms of consolidation is represented by contracting triangles. No matter what financial product one is trading (currencies, indices, etc.) this form of consolidation appears quite often.

 

Contracting triangles can be of two types: continuation and reversal triangles. Whenever a contracting triangle is acting as a continuation pattern, (meaning price will break out of the triangular formation in the same direction it initially entered) the move prior to the begining of the triangle should not be corrective in nature (a corrective move is represented by price retracing often the prior advance/decline) and most likely represents a powerful advance.

 

According to the Elliott theory (contracting triangles are studied in depth under that approach), a contracting triangle that acts as a continuation pattern is to be found in fourth wave types (in this case it is preceeding a powerful third wave type that usually is an impulive move), b wave types (as being part of a simple form of correction) or x wave types (when they are part of a complex form or correction).

 

According to Murrey, there is a strong tendency that price will consolidate in a contracting triangle pattern before breaking through important lines (like the 7th line - the weak/fast reversal line) and this is something that is happening quite often.

 

A triangle that acts as a reversal pattern shows saturation, market trying to break the highs/lows several time, only to fail in the end and price reverses. Such a contracting triangle it is said to break in the opposite direction than the one initially entered.

 

There are typical five waves in a contracting triangle, no more, no less, and according to Elliott they are labeled a-b-c-d-e. There is a strong tendency that a contracting triangle evolves between the a and c and b and d trend lines, and this fact makes the triangle and the potential break extremely visible. The same Elliott states that triangles should have corrective structure for each and every wave, meaning impusive moves should be rulled out.

 

The charts in the attachement show a typical continuation pattern for a contracting triangle (in this case eurcad on the weekly chart) and here it seems to be a b wave type if I were to put a count on it. The second image depicts a contracting triangle that acts as a reversal pattern, eurusd four hours chart in this case.

 

According to the guidelines stated on the previous thread, feel free to upload here a contracting triangle of any type, instrument, etc, with your interpretation and possible outcome.

 

TW

[tradingwizzard 10]

ok, so I will start first.......attached is a contracting triangle that, from my point of view, is going to be a continuation pattern, and, according to what was stated on the previous post, this one is going to break higher..........

 

these kind of examples I want you to post, regardless the time frame, and therefore we can have a subject to discuss, to see if the rules of a contracting triangle are respected, if not, if measured move comes in play, if not, etc.........

 

just post them here and we will discuss them.

 

next thread, still on this forum, Introduction to Technical Analysis, will be about head and shoulders......all triangles that you meet and are current to be posted here.......head and shoulders and inversed head and shoulders in the next thread....

 

Thank you,

 

TW

[tradingwizzard 10]

this is the eurcad 4h chart and price just broke out of a contracting triangle that seems to act as a reversal pattern........triangle broken, retested, and now should go for at least 61.8% retracement of the previous move

[tradingwizzard 10]

another example here on the daily eurjpy chart and this contracting triangle should act as a continuation pattern with new highs to come above 133.70 area

[tradingwizzard 10]

another example here on the daily eurjpy chart and this contracting triangle should act as a continuation pattern with new highs to come above 133.70 area

 

beautiful break to the upside now, as we have new highs.....aren't these triangles beautiful or what?

Edited September 21, 2013 by tradingwizzard

[tradingwizzard 10]

this is just a follow through with what happened with that daily contracting triangle in eurjpy posted a couple of posts earlier and now we have new highs.....continuation pattern here

[tradingwizzard 10]

ok, so I will start first.......attached is a contracting triangle that, from my point of view, is going to be a continuation pattern, and, according to what was stated on the previous post, this one is going to break higher..........

 

these kind of examples I want you to post, regardless the time frame, and therefore we can have a subject to discuss, to see if the rules of a contracting triangle are respected, if not, if measured move comes in play, if not, etc.........

 

just post them here and we will discuss them.

 

next thread, still on this forum, Introduction to Technical Analysis, will be about head and shoulders......all triangles that you meet and are current to be posted here.......head and shoulders and inversed head and shoulders in the next thread....

 

Thank you,

 

TW

 

Just wanting to invite you to look at that contracting triangle posted on eurusd when price was 1.33.....now 1.36........this is what I mean by continuation patterns