Contracting Triangle / Elliott Wave Triangle
General reference values based on Elliott Wave Theory. Actual success rates vary significantly depending on market conditions, timeframe, and instrument.
A sideways corrective pattern in Elliott Wave Theory appearing in Wave 4 or Wave B positions. Composed of 5 waves (A-B-C-D-E), each wave is a 3-wave corrective structure (3-3-3-3-3). Upper and lower trendlines gradually converge as the price range narrows. The breakout after triangle completion occurs in the direction of the larger trend, often foreshadowing the final wave (Wave 5 or Wave C).
Confirm Wave E's completion and enter when price breaks above the upper trendline. Long in an uptrend triangle, short in a downtrend triangle. If Wave E reverses before reaching the A-C line, this is an early entry signal.
Add the widest part of the triangle (Wave A's range) to the breakout point for the price target. First target: 0.618 times Wave A's range. Second target: equal to Wave A's range. Note that the thrust (impulse after breakout) is often relatively short.
Place a stop-loss slightly beyond Wave E's low (for bullish triangles) or high (for bearish triangles). If price reverses beyond Wave D, consider the pattern invalid.
Volume typically decreases progressively during triangle formation. Volume shrinks from Wave A to Wave E, with Wave E usually having the lowest volume. A volume surge at breakout is confirmation; without it, reliability decreases.