Elliott Wave Phenomenon: Horizontal Correction Triangles

Today we will talk about a type of price correction called "horizontal triangle". I think all traders are well familiar with this correctional figure, but sometimes there are differences and problems in identifying both the triangles themselves and predicting further movement after their completion.

Horizontal triangles - a figure of correction

It could be argued that triangles reflect a kind of balance of power, which causes lateral movement market with declining volatility and volume. As stated in previous article, triangles are always labeled A-B-C-D-E and are a kind of extension in the family of corrections on the horizontal axis, unlike conventional zigzags, whose wave structure is a three.

The internal wave structure of a triangle is also three-wave. Triangles are always bounded by lines drawn through points A-C and B-D. Wave E often does not reach the AC line, or makes a sharp movement, piercing the line, and sharply returns to the limits of the triangle, followed by a breach of the opposite line.

In addition to tapering triangles, whose bounding lines converge, there are expanding triangles with the opposite direction of the lines, but they occur quite rarely. Narrowing, in turn, are divided into symmetric, ascending and descending.

Symmetrical triangle we will consider the example of USD\CAD. As the classics write, most of the triangle sub-waves are regular zigzagsbut sometimes one of the sub-waves forms a more complex correction, a plane or a correction-bond, usually it is wave C. As we will see from the real example on the Canadian (see Fig. 1), an extended plane was indeed formed in wave D, although it is not wave C, but still there are no clear indications as to which wave to expect such changes in. Wave E, although it happens very rarely, may itself be a triangle, which does not contradict the rules of wave analysis.

The most important property of triangles is their position relative to the main trend. They are ALWAYS the penultimate model, followed by the final impulse wave. Accordingly, their most frequent appearance is either wave 4 of the impulse, or wave B of the zigzag.

Practical application of horizontal triangles

On the daily timeframe you can clearly see a horizontal symmetric tapered triangle. All proportions are correct - none of the subsequent tops are price-wise beyond the previous ones. Wave (A), (B) and (C) are zigzags, wave (D) is an expanded plane, wave (E) is either already formed or we should wait for the formation of the second leg of the zigzag ABC, which will relate to the first through the Fibonacci coefficient (more about the use of Fibonacci levels in the next issue).

Let's look at the 240min graph for more detail.

It shows that perhaps wave (E) is not yet fully formed, and after the end of the wave B market is still entitled to go up and complete the final zigzag (wave C), then sell would need to implement the upper border of the channel. If it does not happen and the price breaks through the lower boundary of the converging channel, with high confidence you can say about the beginning of a strong weakening of the dollar against the Canadian, then you can sell, as well as if the price returns to the bottom line, as it usually happens when breaking through the triangles.

In general, the price tends to pass the distance equal to the widest part of the triangle, i.e. wave (A), respectively, the optimal target would be the previous Low couples.

• Bottom line: Short-term movement: down.
• Bottom line: Long-term movement: down.