170 Elliott Wave Principles 8.4.3 Triangle A triangle correction usually results in sideways action without any strong trend in either direction. A wiangle pattern cannot form: in wave 2 but is very commonly seen in wave 4 formation. This pattern is labelled as A~B~C-D-E and has all cor~ rective sub-waves, which is 3- ‘When we say three waves, it can take the form of any corrective pattern. So cach leg of the triangle is itself'a corrective pat- tern. This pattern if identified correctly can provide the pattern target which is the idth of its widest leg from the completion of wave E. Figure 8.19 shows a regular triangle pattern in which wave a is the largest. The upside move is halted by this triangle correction. The pattern target is derived by ‘measuring wave a and projecting it upside from the end of wave e. Normally, the next leg will travel 100% to 125% of the widest leg of the triangle pattern. In the Preceding case, as wave a is the biggest, we can expect a target of 100% to 125% of wave a. The b-d trend line is an important line, and a break above this confirms that the triangle pattern is over and the original trend on the upside is resuming, Irregular wave B triangle Many times, its wave b that forms the widest part ofthe triangle, not wave a. This results in an irregular wave b triangle which is shown in Figure 8.202, The pattern c a Triangular pattern FIGURE 8.19 ‘Triangular pattern Some: Author 5 call te aslWWD ba DR Oe 2 8 8 FP ALE ISD A MND Eliott Wave Principles 171 a Triangular pattern with Irregular wave B FIGURE8.20A Triangular pattern with an irregular wave B Soune: Author target is derived by projecting 100%to 125% of wave b on the upside from the end of wave e. Normally, the target of the triangle is achieved hefore the vertex. A ver~ tex is the point where two converging trend lines will meet if extended. ‘Triangles can also form as a part of a complex corrective pattern which is dis cussed later. On occasion, wave ¢ forms the widest part of a triangle, which is known as an irregular wave C triangle, shown in Figure 8.20b. ‘Triangles can also take the form of expansion instead of contraction, known as ‘expanding triangle pattern. In this instance, wave e is the biggest leg and wave a is normally the smallest among all legs of triangle. ‘A triangle can drift on the upside or on the downside, giving the form ofa run ning triangle. Wave e of a triangle can itself be a triangle as well Figure 8.21 shows a classical triangle pattern formed in ICICI Bank from the top of 2008 until the low was formed in 2013. This shows multi-year triangle pattern, For investors, the best opportunity to enter the stock market was on the break above 240 levels which was near the high of wave (D) and also (B)~(D) trend line was broken. Targets are derived by measuring the widest part of the triangle which is by measuring wave (A) and projecting from the lows of wave (B).172 Elliott Wave Principles Irregular Triangle pattern in Bear market Irregular triangle pattern in a bear market FIGURE 8.208 Source: Avthor oe SsERESERN ERR EY ile pattern (ICICI Bank weekly chart). Cr Mntaoe seam oon reated with Amibroker FIGURE 8.21. ‘Trianj aaPw 8 Oe FF FKL MA MA At ew Elliott Wave Principles 173 8.4.4 Diametric pattern: new patterns discovered by Glenn Neely’ (1995) of NEoWave In addition to the standard corrective patterns menti ned carlier, Cilenn Neely, founder of NEoWave, discovered a pattern which is commonly seen across the asset classes, A seven-legged corrective pattern known as Diametric is found often. There are pwo variations to Diametric pattern — Bow-Tie Diametric, shown in Figure 8.22a, and Diamond-shaped Diametric, shown in Figure 8.22b. This pattern is labelled as a-b-c~d-e-F-g, and the sub-waves are 3~3-3-3-3-3-3. In this pattern, it is often seen that wave b consumes less time compared to wave a. Also, there is a tendency for wave g to be equal to wave a in terms of price/ time, wave f to be tending towards equality with wave b, and wave e to be tending towards equality with wave c. A Diametric pattern can drift on the upside or the downside, thereby resulting in a running Diametric pattern. In Figure 8.23, we can sce Facebook exhibited a big fll from the top in the form of a Bow-Tie Diametric pattern. The following are the important observations: ‘Wave E tends towards equality with wave C. + Wave G is tending towards 61.8% of wave A. + Wave F is trending towards equality with wave B. Post completing wave G, there is a break on the upside above the trend line, thereby confirming the completion of the entite Diametric pattern and the start of positive retracement. ® Bow-Tie Diametric Pattern in bear market FIGURE B.22A Bow-Tic Diametric pattern in a bear market Source: Author174 Elliott Wave Principles (b) (3) Diamond Shaped Diametric in Bull market FIGURE 8.228 Diamond-shaped Diametric pattern in a bull market Soure: Author [Lana mango FIGURE 8.23 Bow-Tic Diametre pattern (Facebook diy chart). Created with Amibroker PID © eo. gM eoASSAS ORE Sab 8 9 Pt 8 FF PS PAP AD Ee Elliott Wave Principles 175 Alternation ‘Akemation is an important guideline and is a common occurrence between wave 2 and wave 4. There are different ways in which wave 2 and wave 4 will alternate with cach other, Ideally it is best if wave 2 and wave 4 alternate in as many ways as possible. The different ways of alternation are pattern, price, time, complexity, and severity, For example, if wave 2 forms a zigzag pattern that retraces wave | to the extent of 61.8% and consumes 10 days and wave 4 forms a triangle that retraces wave 3 to the extent of 38.2%, taking 30 days, there ate pattern, severity, and time alternations present between wave 2 and wave 4. Combination pattern It is common to see wave X connecting different corrective patterns together Glenn Neely (1990) mentions that a slower reversal post completion of the last leg of the corrective pattern will normally indicate the formation of wave x. Itis best ‘understood by looking at the charts. Wave X itself ean be any corrective pattern. “The 0-b trend line can be drawn by connecting the starting point of wave a and ending point of wave b of a zigzag or a flat correction. If the 0b trend line is bro- ken in lesser time than wave c took to form or if the entirety of wave ¢ is retraced back in lesser time than it took to form, it will indicate that a complex correction {is probably under formation involving ‘x’ waves. Alternation between wave 2 and wave 4 3 Triangle FIGURE 8.24 Alternation between wave 2 and wave 4 Soune: Author176. Elliott Wave Principles Double combination or double 3s Zigzag 7 ao > c FIGURE 8.25A Double combination pattern Source: Author a x c FIGURES.25B Double combination patter Sone: Auihor Triangle C 2 (b) — UE ai i leElliott Wave Principles 177 Triple combination or triple 3s Teis common to see a combination of different corrections, but usually, itis in the order of zigzag, fat, and triangle. It is rare to see a triangle followed by flat which is later followed by a zigzag combination. A zigzag is supposed to be a powerful correction; that is it results in more price retracement of the prior move as com- pared to a flat and a triangle. On the other hand, triangles are more time corrective pattern rather than price. Therefore, it is normal to see the combinations in the order of zigzag, flat, and triangle and not the other way around. Post completion of double or triple corrective patterns, the higher-degree trend resumes. As men- tioned earlier, there cannot be more than two X waves in a complex corrective pattern. A double combination pattern is also known as double threes and a triple combination pattern is also known as triple threes, ag, Fat eee ite _ Irregular FIGURE 8.264 Triple combination pattern Source: Author FIGURE 8.268 Triple combination pattern ‘Sonne: Author178 Elliott Wave Principles ke Zigzag x Inregular x — Tes 8 ~~ / a FIGURE 8.26C Triple combination pattern Source: Author 6.400 6.200 6.000 5.800 5600 5,400 “ile zigzag patter Oa oT 7 rested with AmBroker - advanced charting and technical analysis sofware. itp/wwnw amitroker.com FIGURE 8.27. Triple zigzag pattern (Nifty daily chart). Created with Amibroker In Figure 8.27, the Nifty has exhibited a very clear triple zigzag pattern, The following are the important observations ‘The fill has been contained very well within the channel involving two “X" ©The pattern is zigaag-X-zigaag-X-tigeag, Its labelled as (W)-(X)-(¥)-0x)-@y, © Waves A and C of the zigeag pattern exhibited an impulsive fall, showing five waves decline. + There can be a maximum of two “X"" waves, and the completion of wave (2) indicates a strong positive reversal with a breakout above the channel resistance,WSS DEAE 8 9) PIL PP APA Sl I Po Elliott Wave Principles. 179 Summary: + Zigzag: a-b-c pattern that is composed of 5-3-5 sub-waves + Regular Flat: a-b-c pattern that is composed of 33-5 sub-waves, with wave b travelling nearly to the beginning of wave a + Irregular Flat: a-b-c pattern that is composed of 3-3-5 sub-waves, with wave b travelling beyond 100% of wave a and, on occasion, 138.2% of wave a + Running Flat: a-b-c pattern that is composed of 3-3-5 sub-waves, with wave b travel g beyond the beginning of wave a and wave c ending well above the end point of wave a, resulting in a strong post-pattern implication + Triangle: a-b-c-d-e pattern that is composed of 3-3-3-3-3. Regular and irregular triangle patterns can be observed. + Diametric (new pattern as per Glenn Neely): seven-legged correction labelled as a-b-c-d-e-f-g and composed of 3-3-3-3-3-3-3 with two varia~ tions of Bow-Tie Diametric and Diamond-shaped Diametric pattern + Double Three: a-b-c-x-2-b- pattern that is composed of a mix (or rep- etition} of any two aforementioned patterns (x wave is a link between two patterns) «Triple Three: -b-c-x-a-b-c-x-a-b-c pattern that is composed of a mix (or repetition) of any three of the aforementioned patterns (two x waves form a link between three pattern’) 8.5 Channelling Channels are a very important aspect within technical analysis. It is crucial to apply channels to a chart when doing the wave counts, It gives profound clarity on the completion of a wave pattern if channels are drawn properly. In the case of an impulse pattern, during its formation, the 0-2 trend line and a parallel to that from end of wave 1 is important. Post that, once wave 4 formation is complete, then the 2-4 trend line is drawn by connecting end of wave 2 and end of wave 4. A parallel to that is drawn from the end of wave 1 when wave 3 is extended, This channel will then give the pattern target for the wave 5 formation. In the case of the first exten- sion or the fifth extension impulse wave, connect the end points of wave 2 and wave 4 as the lower trend line and connect the end points of wave 1 and wave 3. In the case of zigzag and flat corrective patterns, a 0-b trend line can be drawn by connecting the starting point of wave a and the end point of wave b. A parallel to this trend line can be taken from the end point of wave a, For a triangle pattern, the end point of wave b and the end point of wave d can be connected to draw a ‘b-d trend line and, on opposite side, an a-c trend line can be drawn, and in the case of an irregular wave c triangle, a c-e trend line can be drawn, Impulse pattern completion confirmation: Glenn Neely (1990) m tions that in order to obtain a confirmation that wave 5 of an impulse pattern is complete, 2-4 trend line should be broken in a faster time than wave 5 took to form. Neely called it as the first stage of confirmation that wave 5 is over and the counter-trend is starting, The second stage of confirmation is obtained when the