Running Triangle

We had a lot of discussion on the blog about what Neely calls a "running triangle" - which is improperly constructed - and is actually a contracting diagonal, versus a running triangle as defined by the rules of Elliott Wave. Interestingly, there is a live example of a potential running triangle in the US 10 YR Yield as in the 2-weekly chart below. The pattern below does follow the 'rules' for a valid running triangle.

US 10Yr Yield - 2 Weekly - Potential Triangle

Elliott Wave International has shown a similar chart, but my count is more nuanced than theirs. Beginning on the left, I have long held the 2020 low is a truncation as shown. This is one sign of the great strength in yields to follow. The second great sign of strength is the running second wave, (2), where the Minor C wave terminates above the low of the Minor A wave. This presages the great strength in the third wave (3) to follow.

In my understanding, it is only from there that the five Minor waves of the triangle A,B,C,D,E unfold and are still doing so.

Notice three things: first, this likely correct count gives an exact 1.618 Fibonacci relationship for the high of the Minor B wave of the triangle. Second, the E wave of the triangle already has come down under the prior impulse high, (3), to be corrective to it as required by the 'rules'. Third, this picture provides a clear, close and clean invalidation point for the triangle should the FED's actions disrupt the triangle. If a pattern does not provide such a clear invalidation, it is likely of little use to the trader.

If the triangle does play out with a higher high, then a full impulse can be completed. But, what IFF the triangle has become obvious and breaks down? Then, it suggests the impulse is already completed earlier as shown below.

US 10Yr Yield - 2 Weekly - Potential Trap

Both of these charts should currently be viewed as "equal and opposite" by The Principle of Equivalence. Everything depends on the lengths of the waves and the new positioning of the world's largest banks and hedge funds as the result of the FED's actions or inaction.

IF the potential triangle should break down, then I think it speaks to how many bars - time wise - should be considered 'proportional' for a triangle in an impulse wave.

Two other items to keep in mind. Neely often states that the A wave in a true contracting triangle is the most violent and often the shortest. Note the A wave in the first chart is a zigzag, true, but it sure took its own sweet time and didn't go anywhere. So, this gives more credence to the second chart, though not definitive.

Also, the old Wall $treet saw is "trading is treacherous in triangles". That's because apparent triangles have been observed to break down, as well as up. Should this one break down, you'll know the reason why. (hint: it wasn't a real triangle). And, if it should break upwards, that should become clear to you as well.

Have an excellent rest of the evening,

TraderJoe