TraderTalk, Diagonal Triangles. Empowering YOU to profit. Technical Tutorial Diagonal triangles These triangle formations are not common.
Diagonal triangles occur as final, exhaustion, movements of trends and corrections of trends.
In Elliott parlance they therefore occur only in the fifth wave of impulse waves of bull or bear trends or in the fifth wave of the C wave of corrections. Once recognized they can be observed to near completion and trusted as an opportunity to act, as they always foretell a sharp reversal of the trend. The minimum amount of price reversal to be anticipated is a complete retracement to the level at which the triangle began. Another fundamental requirement is that the extreme of corrective wave 4 must overlap the extreme move of wave 1, i.e. in an up trend the base of wave 4 must be lower than the top of wave 1 and in down trends the top of wave 4 must overlap the bottom of wave 1. Sometimes wave 5 can break out of the triangle only to frustrate trend followers reverse and rapidly retrace the whole move covered by the triangle.