The previous article here on ForexGator.com was dealing with the concept of a double combination, a powerful and very common corrective wave. We said that a double combination is actually formed out of two corrective waves that are connected by an intervening x-wave.
However, double combinations are not the most complex corrections when it comes to Elliott Waves Theory. A double combination involves a single x-wave, but there are corrections with two x-waves, like triple combinations, triple zigzags or even triple flats.
Elliott found that a triple combination is happening when at least two of the corrective waves that form the complex correction are different. In other words, if all three corrective waves are zigzags, the pattern falls into the category of a triple zigzag. Or, if all three corrective waves are flats, market falls into the category of a triple flat.
Another point that needs to be considered is a triple combination, or actually any kind of complex correction that does not begin with a triangle. Moreover, it is not possible for the second correction in a triple combination to be a triangle as well.
As a rule of thumb, a triple combination is always ending with a triangle, and if we consider the types of triangles that are possible to appear here, most likely we’re going to see a contracting one.
This leaves little room for error when interpreting a triple combination and the following possibilities appear:
– Flat – x wave – zigzag – x wave – triangle;
– Zigzag – x wave – flat – x wave – triangle;
– Flat – x wave – flat – x wave – triangle;
– Zigzag – x wave – zigzag – x wave – triangle.
As you can see, all of the examples above are starting with something other than a triangle and end with one. This is what a triple combination is looks like and, out of the four examples presented above, the first two are the ones to be met more often.
Looking at the structure of a triple combination, we’re talking about five different corrective waves, of the same degree, with multiple possibilities for the waves of a lower degree.
For example, the first flat can be an elongated flat or a common one, the x waves can be either a triangle, or any other simple or complex correction, and the list can go on. The idea here was to point out that triple combinations are the most complex corrective patterns due to the multiple possibilities that can form
When it comes to the actual places where a triple combination can appear, the most common place is for it to be the longest leg of a triangle. It doesn’t really matter if the triangle is a corrective or an expanding one, but considering the fact that corrective triangles are more common, chances are you’ll find a triple combination as the leg of a contracting triangle.
Moreover, when this is happening, look for it to be either the a-wave in a horizontal contracting triangle or the b-wave in an irregular one. In both cases, it will be the longest segment of the triangular formation.
Now that we know how a triple combination is looking like, how do you trade it? There are two ways to trade such a pattern:
– One way is to stay with the overall trend (a triple combination is actually a powerful trend that it is worth riding) using a trend indicator or some moving averages in order to profit from the whole move. This way, one can add to an initial position and prepare to exit the trend when the triangle at the end of the triple combination is forming.
– Another way is to simply wait for the whole pattern to form, wait for the triangle to break as well, and look for the b-d trend line of the triangle to be retested. This is happening most of the time and that could be a great place to look for a trade in the opposite direction when compared with the direction that the triple combination moved.
As for the target, common sense and logic should prevail. If these patterns are forming mostly as the a-wave or the b-wave of a contracting triangle, it means that market in the overall picture is not going anywhere until the triangle of the bigger degree is actually being broken.
Therefore, logical targets should be related to Fibonacci ratios, and the best place to look for an exit is to find out the fifty percent retracement when compared with the whole length of the previous triple combination.
Next article here on ForexGator.com will deal with triple zigzags and flats, as they only come to complete the complex corrections Elliott Waves Theory has.