# How to Trade Triangles

### Video Transcription:

Hello, traders. Welcome to the Elliott Wave Theory course and the second module, Elliott Wave Patterns. In this lesson, I’m going to teach you how to trade triangles using the Elliott Wave Theory. And we are going to go right through to the charts, and we are going look at this Euro/US dollar daily chart. And, as you can see, we’re going to start analyzing this chart from the bottom which is this one right here and we are going to analyze it all the way up to the highs of the chart, right here. This is a very exciting 2,740 pip move. So you could have made a lot of money using the Elliott Wave Theory. Remember that you need to have patience in order to apply this theory but when you apply it, it will give you some excellent risk to reward scenarios because you are going to be pinpointing your entries with it.

Now, let’s start with the normal, basic pattern that we are going to be following. Okay, so what we’re going to do is we’re going to start labeling our basic one, two, three, four, five pattern, our basic five-way pattern. This is the first wave. Remember that we are following the same rules that we learned before with this pattern. Wave two can never trace more than the beginning of wave one so here we are correct and this is our wave two. And wave three cannot be the shortest. Remember that we don’t know what’s going to happen, okay? But because this wave is larger, this wave is larger than wave one, you can assume that it’s not going to be the shortest wave. So the second rule is, in fact, cleared so we have the end of wave three, okay? We have wave one, wave two, and wave three.

And then we have wave four, okay? Wave four is looking to be very flattish and, in this case, it’s looking to be like a contracting triangle, okay? And this is how we are going to trading this contracting triangle. Let’s assume, guys, that you don’t know what’s going to happen, okay? And we only have, let me just grab this little three and put it right here so you can see that this is the actual high or the actual end of wave three and right here you have the first retracement, okay? Then we have a correction to the upside and then we have a correction to the downside. This looks to be a very flattish correction, okay? And then we have another correction to the upside.

So, we can start labeling this triangle, okay? We can assume it’s a triangle because we have contracting lines with it. This means that the upper line is declining and the lower line is rising, okay? So we can label this A, all right? Or point A of the triangle and we’re going to label the second one B. All right? This is the point B of the triangle. Then, the second touch of the rising lower line is going to be the point C of the triangle. Okay? This is completely logical and we saw it on the last lesson. Now, we are not going to trade inside of the triangle. Why? Because with the Elliott Wave Theory we are going to just pinpoint or we are going to perfectly time our entries with the point E. Okay? We are following the rules of the Elliott Wave Theory and if you look closely, you can see that after points C, we again touch the declining upper line of the triangle to make the point D, or the fourth wave of the triangle right here at this high. Then, we have, right here, the point E. Okay? When we finally touch again the lower or the lower line that is rising and forming the contracting triangle. So we are going to label it E. Okay?

Now, here is where we are going to have our entry. At this point right here, we are going to go long, okay? Why? Because this is a contracting triangle and it is on the fourth wave of the higher degree, one, two, three, four, five basic pattern. So we are going to name this part of the wave the Wave Four, okay? This E is also the end of Wave Four and then we are going to put our stop losses below the low of point A. Why? Because if price comes down and breaks with A, we are no longer in a contracting triangle and we need to get out. This means that we are going to be risking about 179 pips. And then, you can see that price continues to make this high which is the fifth wave of the five-wave basic pattern that we were looking at but we actually traded wave, I’m sorry, we actually traded the contracting triangle of wave four right here for a nice 1,300 pips win, okay? So this is basically how you’re going to be looking for contracting triangles, barrier triangles, or expanding triangles within your charts and always look them prior to the last actionary wave of the overall pattern just like in this case.