Tag: Contracting Triangle

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Forex Elliott Wave Forex Market Analysis Forex Technical Analysis

Gold Continues its Triangle-Pattern Consolidation

Overview

Overview

Overview

Gold continues on the fifth consecutive week of consolidation. The pattern is developing a contracting triangle which remains incomplete. The internal structure observed in this consolidation pattern suggests a limited upside before completing the corrective formation in progress.

Market Sentiment Overview

The price of Gold continues moving sideways by the fifth week in a row, testing the support on the extreme bullish sentiment zone of the 52-week high and low range. Although the precious metal eases 7.5% from its all-time high at $2,075.14 per ounce to date, the yellow metal report gains over 27.7% (YTD).

The following chart presents the yellow metal in its weekly timeframe. In it we distinguish the price movement testing the extreme bullish zone support located at $1,917.81 per ounce. This market condition leads us to expect a new decline for the coming trading sessions, finding support in the 26-week moving average, which currently moves in the $1,850.10 per ounce.

The potential decline in Gold’s price is backed by the strength of the U.S. Dollar Index, shown in the next intraday chart. In the figure, we observe the Greenback showing recovery signals moving above the 120-hour moving average.

On the other hand, the Gold Volatility index continues consolidating in a flag pattern. As discussed in our previous analysis, the current sideways movement, in progress, converges with gold’s consolidating formation, suggesting a new decline in the valuation of the precious metal.

Summarizing, the market sentiment for the yellow metal reveals the exhaustion of the extreme bullish sentiment that dominated the market participants’ activity until early August when the yellow metal reached its record high at $2,075.14 per ounce. At the same time, the recovery signals unveiled by the U.S. Dollar Index lead us to expect further declines in the precious metal.

Elliott Wave Outlook

The short-term Elliott Wave perspective for the yellow metal illustrated in the following hourly chart reveals a consolidation formation identified as an incomplete contracting triangle pattern.

In the hourly chart, we recognize the price action advancing in an incomplete corrective structural series, which began after the yellow metal topped at $2,075.14 per ounce from where the golden metal started to find sellers. The first decline corresponding to wave (a) of Minuette degree identified in blue found support at $1,832.62 per ounce. This bearish aggressively-looking leg alternates with wave (b), which still remains in progress.

The incomplete wave (b) in progress follows the internal sequence of a contracting triangle pattern, which currently ended its wave d of Subminuette degree labeled in green. According to the Elliott wave theory, the price should develop a marginal advance completing a wave e, in green, before continuing its bearish path. The limited upward move expected corresponds with the potential decline foreseen in the Gold Volatility Index, which shows a consolidation in the form of a flag pattern.

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Forex Signals

CADJPY – Contracting Triangle Suggests Fresh Upsides

Description

Description

Description

The CADJPY cross, in its 4-hour chart, exposes a contracting triangle pattern that belongs to the second wave of Minute degree identified in black.

According to the alternation principle and the extensions of the Elliott wave theory, this complex structure should precede the extended impulsive wave.

On the other hand, the last rally developed by the Oil group could support the bullish sentiment in favor of the Canadian currency.

A buy-side position will activate if the CADJPY cross soars above 76.08. In our conservative scenario, we foresee a rally at least until the level 78.16; however, we don’t discard an upside till level 80. 

The bullish scenario will be invalid if the price drops below the level 74.63.

Chart

Trading Plan Summary

Categories
Forex Daily Topic Forex Elliott Wave

Analysis and Trading with Triangles

In our previous article, we discussed how we could simplify the zigzag and flat pattern by the chartist figure known as a flag. In this educational article, we will see how triangles can be used in wave analysis.

In our previous article, we discussed how we could simplify the zigzag and flat pattern by the chartist figure known as a flag. In this educational article, we will see how triangles can be used in wave analysis.

In our previous article, we discussed how we could simplify the zigzag and flat pattern by the chartist figure known as a flag. In this educational article, we will see how triangles can be used in wave analysis.

The Background

Within the Elliott wave theory, triangles represent one of the three basic corrective formations. Similarly, in traditional technical analysis, triangles represent consolidation and continuation formations of the trend.

Elliott defined triangles as a formation that have an internal structure subdivided into five waves following a 3-3-3-3-3 sequence. At its time, Elliott identified two triangle variations, which are classified as expansive or contractive.

In general terms, triangles represent the market indecision or the balance between the buying and selling forces.

The following chart shows the model of the triangles in their contractive and expansive variants, under the Elliott Waves theory and Traditional Technical Analysis perspective.

According to the point of view of the traditional technical analysis, we can observe that the triangle pattern is not forced to have five internal segments, as in Elliott’s wave theory. In consequence, a truncated zigzag or truncated flat structure could be simplified by a triangle pattern.

The Trading Setup

The trade configuration of a contracting triangle pattern has the following characteristics:

  • Entry Level: A buying (or selling) position will be activated if the price exceeds and closes above the swing of the previous top.
  • Profit Target: The first profit target level will take place at 78.6% of the Fibonacci expansion, while the second will be at 100%, and finally, the third profit target level will be at 127.2%.
  • Protective Stop: The invalidation level of the trade setup will be located below the lowest swing of the triangle pattern.

The trade configuration of an expansive triangle pattern has the following properties:

  • Entry Level: The trade will be activated if the price exceeds the height of the expanding triangle.
  • Profit Target: The first profit target level will be at 100% of the Fibonacci expansion. The second profit target level will be at 127.2%.
  • Protective Stop: The level of invalidation will be located below the lowest low of the expansive triangle pattern.

Examples

The following chart corresponds to the AUDUSD pair in its 12-hour timeframe. We can observe that the price action developed an expanding triangle formation, which began from mid-May 2019 and culminated in mid-July 2019.

From the chart, we detect that the expanding triangle reached its highest level at 0.70821, which corresponded to a false breakout. Subsequently, the price action resolved the next movement with a drop that took it to plunge until 0.66771.

The sell-side entry was activated once the price closed below the lowest level of the expanding triangle at 0.68317. Once activated the sales position, the price reached the first target at 0.67080.

Another possibility of entry that could be considered would be the closing below the last relevant swing, that is, the closing below 0.69105. This option could provide the trader with a higher profit compared to the risk taken compared to the original entry setup.

The next example corresponds to Silver in its daily chart. From the figure, we observe that the price made a record high early July 2016, reaching $21,225 per ounce, after this, the price action performed a corrective movement, once its found support, Silver built a tight contractive triangle.

After breaking below $18,715, Silver activated a bearish scenario that drove the price to fall to the third bearish target at $15.66 per ounce.

After having fulfilled the third bearish target, the price fell and reached $18.435 on April 17, 2017, where Silver began to build a contractive triangular structure that lasted until the end of June 2018.

Once the downward break of the long-lasting triangle occurred, we see that the price made a limited downward movement, which did not yield below $14 per ounce.

Conclusion

Based on the discussion of this article, we can conclude that regardless of the corrective structures that have three or five internal waves, these can be simplified as triangular patterns. Also, we can observe that a corrective wave or a short-range narrow triangle is likely to have an extended move that, in terms of Elliott’s wave theory, could correspond to an extended wave.

On the other hand, extensive triangular formations, or of a wide range, could lead the price to move in a range not as broad as in the previous case.

Finally, in the last example, we recognize how the alternation principle works in Elliott’s wave theory. Just as the first observed triangle is simple, and has a short duration, and the second corrective formation is extensive and complex.

Categories
Forex Elliott Wave

The USDJPY and its 3-Year Triangle

The triangle is one of the three basic corrective patterns along with the Flat structure, with more variations within Elliott’s Wave Theory. In this educational article, we will review the

The triangle is one of the three basic corrective patterns along with the Flat structure, with more variations within Elliott’s Wave Theory. In this educational article, we will review the

The triangle is one of the three basic corrective patterns along with the Flat structure, with more variations within Elliott’s Wave Theory. In this educational article, we will review the basic concepts of the triangle pattern and then apply it to the USDJPY pair.

The Fundamentals

Triangles are one of the three basic corrective formations described by R.N. Elliott. Five internal segments characterize them. The inner legs overlap and follow an internal sequence as 3-3-3-3-3.

The following figure shows the different types of triangles. By simplification, we omitted the internal structure of each segment that composes the triangle pattern.

We should consider the nature of the triangle, a balance between the buying and selling forces. In this context, and under a conservative approach to trading, it is not desirable to trade within this internal structure. However, the breakout of price action across the wave (D) can provide a reliable entry to the market with reduced risk.

The 3-Year Triangle of USDJPY

The following chart corresponds to the USDJPY pair in its weekly timeframe, using a log scale. We observe the price action on the Japanese currency developing a Contracting Triangle structure that began at the end of 2016.

The next chart shows the USDJPY moving in a 12-hour timeframe. The pair shows the last internal segment corresponding to a wave (E) of Intermediate degree labeled in black.

At the same time, in the last figure, we can distinguish the price action developing an Expanding Triangle formation in a wave C of Minor degree labeled in blue. However, the RSI oscillator reveals in its progress the shape of a contractive triangle pattern.

It should be noted that when the price action develops an Expansive Triangle in a wave C, the pattern should correspond to an Expansive Diagonal formation. Remember that a diagonal pattern has five internal waves overlapped one with another. At the same time, each inner leg holds three segments.

Trading the USDJPY Triangle

The USDJPY pair in its 12-hour chart shows an incomplete expansive diagonal. Consequently, positioning on the long-side could still have endeavored with a short-term objective placed in the upper trendline of the diagonal. A likely target area would be between 109,716 and 110,551.

Considering that the invalidation level of the bullish segment is the bottom of the wave ((iv)) in green at 108,242, the breakdown and close of the price below this level could give us the first bearish scenario with a target at the end of the wave B labeled in blue located at 106,625.

Now, if the USDJPY price continues extending its falls below the end of wave C in blue and (D) in black located at 104,446, a major-degree bearish scenario would be activated. Under this context, the pair could see the psychological support of 100 yen per dollar.

Conclusions

Depending on the trader’s style and its risk aversion, the internal structure of the triangle pattern could be traded one timeframe shorter than the time frame in which the triangle has been identified.

We must remember that the internal structure of the triangle follows a sequence 3-3-3-3-3. Under this context, a three-wave corrective structure can be a Flat pattern (which has a subdivision 3-3-5); or it can also be a zigzag pattern (5-3-5). Therefore, an internal wave C could give a trading opportunity. However, knowing the nature of the triangle pattern, and considering it is formed by the struggle between buyers and sellers, the targets of the movements anticipated should be limited by the triangle formation.