Contracting Triangles

Contracting triangles are extremely common formations for the currency markets and they can be both continuation patterns as well as reversal ones. They can be symmetrical or ascending/descending triangles. For the purpose of this recording I am gonna show you both symmetrical and ascending/descending triangles for you to understand the difference between them.

A symmetrical triangle can be a continuation pattern when it is forming a correction of a 4th wave type according to the Elliott Wave Theory (which we will cover a couple of chapters later) and that means price has the tendency to exit the pattern into the same direction it originally entered. The same symmetrical triangle can be a reversal patter when it is ending a complex correction of a previous wave of a higher degree, based on Elliott teachings, and in this case the price has the tendency to exit the pattern in the opposite direction than it originally entered. For both cases, there are two ways to take a measurement from a symmetrical triangle: one would be to take the height of the first wave (which is always the longest one in a contracting triangle) and project that vertical distance from the breakout point, and the second way would be to draw a parallel line upward from the top of the first wave/swing, parallel to the lower line in the triangle, and when it is being hit you have your measured move. Both cases are illustrated in the recording that comes with this chapter.

A contracting triangle can also be an ascending/descending triangle, and in this case it is only a continuation pattern. The pattern is completed on a decisive close above the upper line, and this line should offer support on any dip after he breakout. The minimum objective is measuring the length of the first leg, which, remember, is the longest one, and project it upward/downward from the breakout point.

Book recommendation: Book recommendation: Martin J. Pring, “Technical Analysis Explained”, Feb 20, 2002