Dear friends!

In the previous training article, I covered triangle patterns, their variations, and basic
construction rules.

If you haven’t read the previous articles in the NeoWave series, I recommend covering all the
articles devoted to the NeoWave theory based on Glenn Neely’s book Mastering Elliott Wave,
starting from the first one:

Neo Wave theory. Part 1. Rules for creating charts.

Neo Wave theory. Part 2. Basic information on Polywaves and Structure Labels.  

NeoWave. Part 3. Retracement Rule 1.

NeoWave theory. Part 4. Retracement Rule 2.

NeoWave theory. Part 5. Retracement Rule 3.

NeoWave. Part 6. Retracement rule 4. Conditions “a” and “b”.

NeoWave. Part 7. Retracement rule 4. Conditions “c”, “d” and “e”.

NeoWave. Part 8. Retracement rule 5. Conditions “a” and “b”.

NeoWave. Part 9. Retracement rule 5. Retracement rule 6, condition “a”.

NeoWave. Part 10. Retracement Rule 6. Conditions “b”, “c”, and “d”.

NeoWave. Part 11. Retracement rule 7.

NeoWave. Part 12. Impulsions and the rules to analyze impulse wave patterns.  

NeoWave. Part 13. Corrections. Rules to identify a correction.

NeoWave. Part 14. Triangles. Rules to identify triangles.

In this educational post, I will explain the formal (basic) and advanced rules of logic.

Triangle patterns. Basic rules of logic to confirm a triangle formation

Remember, the basic rules are applied to confirm the formation type.

We shall confirm the authenticity of a contracting triangle by analyzing the market action after
the pattern completion.

Stage 1
First, draw a trendline through the beginning of wave B and the end of wave D. The first wave,
immediately after the completion of the triangle, must break the B-D trendline in the same
amount of time (or less) as that consumed by wave E.

Stage 2

The thrust after wave E of a triangle should exceed the highest or lowest price level (depending
on the direction of the thrust) achieved during the triangle. Another important criterion to
confirm the formation of a contracting triangle states that the triangle's thrust must terminate
in a time frame which is less than 50% of that taken by the Triangle (added to the end of wave
E).

Formal rules of logic to confirm the formation of expanding triangles

To confirm the authenticity of an expanding triangle, you should apply the opposite
requirements. In other words, after the E-wave of an expanding triangle, the market should
either not retrace the E-wave completely breaking the B-D trendline, orit will take more time to
completely retrace wave E than it took to form.

Let us study the example of how a contracting non-limiting triangle (analyzed in the previous
article) is confirmed.

First, we draw the B-D trendline. The first wave immediately after the pattern’s completion,
should break the B-D trendline in the amount of time that is no longer than that consumed by
wave E. As you see, the blue area, which marks the E-wave’s price territory, is smaller than the
red area, which highlights the period when the post-triangular wave is forming and breaks the
B-D trendline. Therefore, the first stage of the pattern confirmation is completed.

Now, let us look at the thrust after the E-wave. It makes a new high (the blue dot in the chart)
that exceeds the highest level (the pink line in the chart) achieved during the formation of the
triangle. Therefore, the second stage also confirms the triangle. Next, I will cover the advanced
rules of logic applied to triangles, exceptions to the rules, as well as the principles of
identification of price patterns composed of monowaves.

Advanced rules of logic for a contracting triangle

Remember, the advanced rules of logic are used to analyses the market action after the pattern
completed.

A thrust always follows a contracting triangle, which depends on the pattern’s variation. The
thrust out of a contracting triangle should always exceed the highest or lowest price reached
during the formation of the triangle unless it moves against the direction of wave B.

A contracting triangle may be the B-wave or the last phase in a correction, or it may be the
fourth wave in an impulse. Besides, triangles create important support/resistance levels.
Namely, when the triangle is finished, its apex point will be a significant support to any decline
or resistance to any rise. However, the “horizontal” influence of the triangle’s apex point will
usually hold for only two or three violations. If the market has moved up or down through the
price level occupied by the apex point more than three times, the market is indicating that the
price level has lost its significance.

Advanced rules of logic for a contracting limiting triangle

This variation of triangles doesn’t depend on the previous pattern, unlike most corrections.
Post-triangular action in a limitingtriangle is determined by the size of the widest segment of
the triangle and the placement of the triangle’s apex point. Remember, the apex point is
created by the converging trendlines which form the triangle. The triangle being analyzed is
limiting, the market action after the thrust usually returns to the breakout point and often
exceeds it.

Depending on the slope of the trendlines which create the Triangle, the thrust could be
between 75% and 261.8% of the widest segment of the triangle. The time period of the thrust is
generally equal to that it took the market to cover the distance from the end of the E-wave to
the apex point. Differently put, the thrust should terminate almost exactly into the time
periodwhere the converging trendlines crossed.

If the triangle is a B-wave of a correction or the 4th wave in an impulse, but the post thrust
action has not returned to the breakout point or beyond and the market action has exceeded
the original thrust's highest or lowest price level, there must be a terminal pattern forming.

There also can be forming the x-wave if the triangle is the B-wave of a larger formation. The x-
wave is most likely to be forming when the post-thrust action fails to break the beginning of the
triangle after it reaches the time period of the triangle’s apex.

Advanced rules of logic for a horizontal, contracting limiting triangle

The thrust out of such a triangle usually falls in the range of 75% and 125% of the widest
segment in the triangle.

Advanced rules for an irregular contracting limiting triangle

If the B-wave in the pattern exceeds the end of wave A (in both directions), the thrust out of this
triangle may reach 161.8% of its widest segment.

Advanced rules of logic for a running contracting limiting triangle

This is the most powerful variation of triangles. The thrust out of the triangle may reach 261.8%
of the widest segment in the triangle. Besides, if the triangle is drifting upward, the trend is
strong, it is drifting downward, the trend is weak.
Advanced rules of logic for contracting non-limiting triangles

A non-limiting triangle doesn’t impose any specific rules for post-triangular market action. So,
the only way to predict further market action is to analyze the action preceding the correction.
If a correction with a triangle, it means the correction must be complex, that is a double or
triple pattern. If it is followed by an impulse, the impulse should be at least the same length of
the previous impulse. The non-limiting thrust should not terminate during the time period
occupied by the apex point.

The above chart displays the contracting non-limiting triangle. Let us see how the advanced
rules of logic work, using it as an example. The thrust of the non-limiting triangle should be
longer than the widest segment in a triangle. The wave, following the E-wave, is a little more
than 100% of wave A, which is the widest in the triangle being studied. Besides, in accordance
with the rules of logic, the thrust doesn’t terminate within the price period occupied by the apex
point.

Advanced rules of logic for expanding triangle

The expanding triangles usually imply the opposite attributes of the contracting triangles. The
thrust is usually less than the widest leg of a triangle. When the pattern takes place in the B-
wave position, there must be a c-wave failure. If an expanding triangle completes a larger
pattern, it is unlikely that the next move will completely retrace the E-wave of the triangle. If it
does, the retracement should take more time than that consumed by the E-wave.
Advanced rules of logic for an expanding limiting triangle

The only implicationthat is reliable about this pattern is it should not be completely retraced by
the following wave.

Advanced rules of logic for an expanding non-limiting triangle

These triangles most commonly serve as the first or last phase of a complex Corrective pattern,
or as an x-wave. If it is the first segment of a complex correction, it should not be completely
retraced by the next wave. If it is the last phase of a complex correction, then it should be
completely retraced by the next move.

Let analyze the expanding triangle, I studied in the previous article. As you see, the wave
following the E-wave doesn’t completely retrace the triangle. Therefore, it can be the x-wave or
the first segment of a larger complex correction. We could analyze the pattern in the inverted
order. For example, if we presume that the non-limiting triangle is the last phase of a larger
correction, its thrust likely to reach the beginning of the triangle.

That is all for today. In the next training article, I will cover advanced rules of logic for zigzags
and identification of price patterns with larger formations.

Take care of yourself and your money! 

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Price chart of BTCUSD in real time mode

Periods
 M1
 M5

 M15

 M30

 H1

 H4

 D1

 W1

Zoom1D1W1M3M6M1YALL30. Nov14. Dec28. Dec11. Jan25. JanDec '20Jan '21F…

15k20k25k30k35k40k45k
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official position of LiteForex. The material published on this page is provided for informational
purposes only and should not be considered as the provision of investment advice for the
purposes of Directive 2004/39/EC.
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WRITTEN BY
Mikhail Hypov
Investment analyst and independent trader

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