In Technical Analysis , a contracting triangle is a chart pattern that forms when the price of an asset consolidates between two converging trendlines. It is a type of triangle pattern that is characterized by progressively smaller swings in price as it moves toward the apex, or the point where the two trendlines meet.
A contracting triangle is typically formed by five waves labeled A-B-C-D-E, with waves A, B, C, D, and E all consisting of smaller waves. The first three waves, A-B-C, form the contracting portion of the triangle, while the last two waves, D-E, form the expanding portion. Wave E usually exceeds the upper or lower boundary of the triangle before reversing direction.
When a contracting triangle appears on a price chart, it is often a sign of indecision in the market, with buyers and sellers struggling to establish control. Traders may use the pattern to anticipate potential breakouts, with the direction of the breakout providing a signal for future price movements.
Status:: #wiki/notes/mature
Plantations:: Elliott Wave Theory
References:: The Elliott Wave Principle