Chart Patterns
Triangles
A triangle in a chart is created when the distance between a security’s highs and lows are decreasing. There are a number of different types of triangles including symmetrical, ascending and descending.
A symmetrical triangle occurs when both the highs and lows are moving towards each other, i.e. a security is achieving lower highs and higher lows. It can occur in either an up or down trend and is normally a continuation pattern. A continuation pattern occurs when the security continues to move in the same direction after the pattern as it was before the pattern formed. Having said that, occasionally, a symmetrical triangle can be a reversal pattern but in either case this will only be confirmed once the security breaks out from the triangle as shown in the chart. Ascending triangles occur when a security is achieving higher lows, however the highs are remaining mainly at the same level due to resistance. Similarly, an ascending triangle can occur in both an up or down trend. The fact that the lows are increasing provides some indication that the demand for the security is increasing as the buyers are placing greater pressure on the sellers as the support rises. Chances are that the security will break up from an ascending triangle as shown in the chart below.
Descending triangles occur when a security is achieving lower highs, however the lows are remaining mainly at the same level due to support. Similarly, a descending triangle can occur in both an up or down trend. The fact that the highs are decreasing provides some indication that the supply for the security is increasing as the sellers are placing greater pressure on the buyers as the resistance rises. Chances are that the security will break down from a descending triangle as shown in the chart below.
The point at which the two lines meet in the charts is often called the apex and if the break does not occur before meeting the apex, the pattern will most likely fail. If a trade is initiated on a break from a triangle, a suitable stop could be placed on the other side of the triangle.
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