{"id":104888,"date":"2017-04-23T07:04:54","date_gmt":"2017-04-23T11:04:54","guid":{"rendered":"http:\/\/countingpips.com\/?p=104888"},"modified":"2017-04-17T07:05:18","modified_gmt":"2017-04-17T11:05:18","slug":"%e2%80%8bthe-value-of-trading-contracting-triangles-and-wave-corrections","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/04\/%e2%80%8bthe-value-of-trading-contracting-triangles-and-wave-corrections\/","title":{"rendered":"\u200bThe Value of Trading Contracting Triangles and Wave Corrections"},"content":{"rendered":"
April 23, 2017<\/div>
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By Admiral Markets<\/b><\/p>\n

\"waves.png\"<\/p>\n

Dear Traders,<\/p>\n

Many traders appreciated last month’s article with
\nmy most favourite wave patterns<\/a>. Being able to recognise wave 3 and “end of the trend” scenarios makes sense even for non-Elliott Wave traders.<\/p>\n

This article adds another two patterns, which I think are relatively simple to identify. That is a win-win<\/strong> for both wave and non-wave traders.<\/p>\n

Today we review the contracting triangle<\/strong> chart pattern and the end of the wave 4 correction.<\/strong><\/p>\n

\"Wave<\/a><\/p>\n

Trading triangle chart patterns<\/h2>\n

The Elliott Wave Theory explains how and why price moves as it does \u2014 with momentum and correction besides up, down and sideways. There are many variations of corrective patterns, but one particular pattern is my favourite \u2014 the contracting triangle.<\/p>

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The contracting triangle has many advantages because it is relatively simple to spot and trade. Why?<\/p>\n

They key feature <\/strong>of the contracting triangle is that the tops and bottoms do not break<\/strong>. Or in other words, there are several lower highs and higher lows in a row.<\/p>\n

The triangle usually offers 5 support and resistance (S&R) points in the pattern, although sometimes the pattern is extended with 9 S&R points.<\/p>\n

\"waves2.png\"<\/p>\n

Price can break both above and below the triangle, but there is higher chance that the breakout will occur in the same direction as the previous momentum, which means:<\/p>\n

    \n
  1. Bullish momentum before the formation of the triangle typically sees a bullish breakout above the triangle.<\/li>\n
  2. Bearish momentum before the formation of the triangle typically sees a bearish breakout below the triangle.<\/li>\n<\/ol>\n

    This pattern, therefore, offers interesting trade possibilities and entry setups <\/strong>for traders because the tops and bottoms represent natural <\/strong>and strong support and resistance (S&R) points.<\/p>\n

    The S&R levels can be used in various ways:<\/p>\n

      \n
    • For bounce entries:\n
        \n
      • Long entry near support.<\/li>\n
      • Short entry near resistance.<\/li>\n<\/ul>\n<\/li>\n
      • For breakout entries:\n
          \n
        • Long entry as price breaks above resistance.<\/li>\n
        • Short entry as price breaks below support.<\/li>\n<\/ul>\n<\/li>\n
        • For stop loss (SL):\n
            \n
          • Long entries should have SL below support.<\/li>\n
          • Short entries should have SL above resistance.<\/li>\n<\/ul>\n<\/li>\n
          • For targets (take profits):\n
              \n
            • Bounce trades can target the opposite S&R of triangle, S&R from a higher time frame or a Fibonacci level.<\/li>\n
            • Breakout trades can target S&R from a higher time frame or a Fibonacci level.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n

              Basically, the triangle can be used to trade bounces within the triangle and breakouts away from the triangle.<\/p>\n

              I myself use candlesticks <\/strong>to measure whether a breakout or bounce trade setup has been properly formed. For more details on how I read the price action in general and how I interpret the candlestick itself, please check out the video below.<\/p>\n

              It will explain why the size of the candle is important and why percentage of the candle wick compared to the candlestick body is also vital.<\/p>\n