Triangles are the most common form of consolidation and a trader should keep in mind price has the tendency to consolidate more time than the time taken for it to trend. That being said, it is also worth mentioning that contracting triangles are most common than expanding triangles, and this is an important aspect. Moreover, expanding triangles are quite rare, more likely to be expected on the currency markets, but even there they are extremely rare.
That leaves us with the contracting triangles to be the most common form of consolidation/correction, even if sometimes, and especially on the currency markets, this type of triangle can act as a reversal patterns when it is part of a complex form of correction.
Depending on the time frame they appear, contracting triangles can be traded using binary options in the sense that there is a time relation between the legs of a triangle as well as a retracement level typical for it. It is typical for the first leg of a contracting triangle to be a zigzag and each leg that follows the first one, usually labeled wave a, to be shortest than the previous one.
Contracting triangles have different forms, called variation forms, and most common ones are the running variation form and the horizontal form. While the running variation form is mostly found as a reversal pattern, hence being part of a corrective wave, the horizontal variation can be both a reversal pattern and a continuation one.
In this sub chapter we will take a look at how to trade contracting triangles on short term time frames.