When using the Elliott Waves Theory, there are many different types of triangular pattern than can be identified during technical chart analysis. Consolidation is very important in trading as the market spends over 65% of its time within consolidation areas, so understanding the ways in which the market is consolidating can give a trader a competitive edge.
One of the triangular patterns which can appear on a trader’s analytical charts is the running triangle, which can be easily identified and traded by a skilled investor. Being able to spot this pattern and knowing how to trade it effectively can make all the difference in the success of trading binary options.
While binary options can be traded on a wide range of financial products, foreign currency pairs offer a lot of possibilities as it is a 24 hour a day market leaving unlimited possibilities for expiry dates on options. As the forex market is exceptionally volatile, more so than other financial markets, the running triangle formation is very commonly identified. If the pattern is bullish, the end of the triangle has to come above its starting point, whereas if it is bearish, its ending point must come below its starting point. Running triangles appear at the end of a complex correction and therefore, being aware of when this type of triangle is broken allows the trader to set a good expiry date using as a basis the time frame on which the triangle has formed.
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How to Identify a Running Triangle
A running triangle in the Elliott Wave Theory reflects the way in which an asset’s price moves in a series of retracements and rises rather than in a straight line. This triangle type is an area of horizontal price movement showing a consolidation of a previous move and will be composed of threes i.e. all of the A-B-C-D-E waves feature three subwaves, 1, 2 and 3. As the pattern moves towards a breakout, volatility and volume often recede, however this is not always the case.
The shape of a running triangle pattern follows 2 converging trend lines making it a symmetrical triangle with a key difference. In a running triangle, the beginning of the pattern shows wave A’s starting point falling short of its trend line i.e. the B wave runs beyond the beginning the the A wave, thus giving it its name.
In a bearish market, a running triangle gives an inverted picture of a triangle in a bullish market with the price action swinging from trend line to trend line with convergences. The A-B-C-D-E waves will subdivide into 3s, giving a configuration of 3-3-3-3-3 and the B wave will run beyond the starting point of the A wave. As the price reaches the triangle’s apex, it is likely the market will soon turn.
The Rules of the Running Triangle
When identifying the running triangle on the technical charts, it is important to be aware of the rules which govern its key shape. Here are the rules which the pattern must follow in order to be a true running triangle:
1. The waves will bottom out and top out following the two converging trend lines.
2. The running triangle pattern will be composed of 5 waves (A-B-C-D-E)
3. The B wave will always run beyond the starting point of the A wave.
4. All of the A-B-C-D-E waves will be composed of 3 subwaves, giving it a 3-3-3-3-3 configuration.
5. Over the pattern’s life, it is likely that the volatility and volume will recede, however this will not always be the case.
Other educational articles
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- Elliott Waves – The Implications Of A Running Correction To Reduce The Risk Of Painful Trading
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