Contracting Triangle
A contracting triangle is a five-wave sideways pattern labeled A-B-C-D-E where each successive wave is smaller than the one before it. The upper and lower trendlines converge, creating a narrowing range that squeezes price into a tighter and tighter band. Wave A sets the boundaries, and each subsequent wave makes a lower high and higher low. All five sub-waves subdivide into three-wave structures (3-3-3-3-3). You'll find triangles most commonly in Wave 4 or Wave B positions, acting as continuation patterns. The breakout from a triangle comes in a thrust that is swift but often short-lived, typically measuring the widest part of the triangle. One of the most useful signals: when you identify a triangle forming in Wave 4, you know Wave 5 is coming and it will break in the direction of the larger trend. The E wave often fakes out traders by not reaching the trendline or slightly overshooting it before the thrust begins.
Tesla stock consolidates in a contracting triangle during Wave 4. Wave A drops to $180, B rallies to $210, C dips to $190, D bounces to $202, and E makes a final low at $193. The converging trendlines meet near $197. The breakout thrust in Wave 5 drives price to $235 quickly, roughly equal to the widest part of the triangle added to the breakout point.