Of all the patterns out there, expanding triangles are the most tricky ones. First, they are extremely rare, even on the currency markets. Second, they are misleading as each leg of the triangle gives the impression this is not a triangle but something else. And third, this pattern creates the illusion the market is breaking out all the time. This is quickly met with a reversal and then the break of a support or resistance level on the other side of the trading range. On the recording that comes for this chapter I will try to illustrate such a pattern and give you some tips and tricks about how to play it.
A quick difference between a contracting and an expanding triangle is that on the expanding triangle the first leg is the longest, and the following legs have the tendency to exceed the distance traveled by the previous wave. There is no way to anticipate the formation of such a pattern and the tricky part of it comes that each leg makes a new marginal high/low, giving the impression a new trend starts, only for price to reverse strongly in the opposite direction and take the previous highs/lows too. It is a trader’s nightmare, but if spotted, it can be extremely rewarding.
Another characteristic for such a triangle is that the last leg of it, which in this case is the longest one, has the tendency to blow off, being much longer in price and time that the other waves.
Moreover, one of the strangest aspects of such a triangle appears to be their lack of numerous Fibonacci relationships between the legs of the triangle.
The one thing to remember though regarding this pattern is that it appears extremely rare, and usually it is a continuation pattern, despite its apparently random moves.
Book recommendation: Glenn Neely, Eric Hall, “Mastering Elliott Wave”