Triangles are one of the traders’ favorite ways to see a consolidation only by looking at any random chart and time frame. Out of all the type of triangles that exist, the most common one is the contracting triangle.
Few traders know the fact that contracting triangles, very much like head and shoulders, pennants, flags, etc, are coming with a measured move, and this means a move that the market MUST travel in order for the triangle to be validated/confirmed. If the measured move is not traveled, then the market is simply not forming a contracting triangle and the trader should re-analyze the whole pattern.
Any triangle has five different legs, no more, no less, and they should be labeled with letters, in the form of a-b-c-d-e. For more information and details about how to trade a contracting triangle please refer to the Binary Options Academy educational series dedicated to it.
How to Identify the Triangle
As for the thrust of a triangle, this is the 75% distance taken out of the longest wave of the triangle and projected from the end of the triangle, so basically from the end of the e wave.
This thrust, or the measured move, should come no matter what in order for the market to confirm the pattern. It may not seem as being too much, but consider you identify the pattern on the daily or even on the weekly charts and then you will come to appreciate the beauty of trading the thrust of a triangle.
Thrust of a Triangle
The notion of a thrust is considered to be similar with the one of a measured move in any other given technical analysis pattern, and sometimes this measured move is mandatory to come in a specific amount of time.
In other words, in special types of triangles, the type of triangles that are having a price action to come that is limited, there’s also a time constraint for price to reach a specific target and just like that we have the all-important price and time component, the one that matters for any binary options trader.
However, those kind of triangles are pretty rare when it comes to technical analysis but this does not imply they are impossible to form. It is said that if such a triangle is forming on the bigger time frames like daily charts or even higher, they are extremely rewarding as there are some limitations as how to draw the a-c and b-d trend lines as well.
Spotting the End of a Complex Correction
Normally contracting and expanding triangles are forming most of the times at the end of complex corrections and those triangles have the b-d trend line broken and retested before anything. But the retest is not mandatory in such situation, it’s only a confirmation that market is indeed ending a complex correction.
Any triangle we know by now is having a five wave structure, only corrective waves and they are labeled with letters. The thrust of the triangle is always being determined in comparison with the longest leg of the triangle and this is most of the times wave a, but it can be a b wave as well. In the case we’re dealing with a wave a that is the longest, then measuring the length of it and taking 61.8% out of it represents the thrust of the measured move price should travel after the triangle is completed.
It means that this is the safety distance to travel if I may say so but sometimes, depending on the place the triangle is forming, this measured move is not mandatory. For example if you have a triangle that is forming as an X wave (continuation pattern) and the other corrective wave of the same degree is still a triangle, then after the wave a of the last triangle we can consider the thrust of the previous one being completed.
Contracting Triangles Depend on the Break of the B-D Line
As always, when it comes to contracting triangles, it all depends on the breaking of the b-d trend line. It cannot be a fake break as by the time the b-d trend line is gone we can say for sure the triangle is completed.
The trick is with the a-c trend line which is basically giving us the type of the triangle the market is forming and this means that we know where the triangle is forming and if it has a measured move (thrust) or not.
Triangles without Thrust
As a rule of thumb, if the triangle is forming at the end of a complex correction, it is said that the a-c trend line should not be clean, meaning it should be pierced by parts of other legs of the triangle. In this case, the triangle it is said that it has no measured move or thrust.
On the other hand, if the triangle is forming as the b wave in a zigzag or the fourth wave in an impulsive move, it is said that the a-c trend line should be clean and the b-d trend line should not be retested after the triangle is completed.
For the binary options traders, triangles represent a very rich source of knowledge and opportunities as market is basically consolidating in triangular formations most of the times so knowing the place the market is forming a triangle and what to expect after it is vital in successful trading.