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What Is a Triangle Chart Pattern?
Let me explain what a triangle chart pattern is—it's a key tool in technical analysis, named because it looks like a series of triangles on a chart. You create it by drawing trendlines along a converging price range, and this signals a pause in the prevailing trend.
As a technical analyst, I read these triangles as indicators of either a continuation of the existing trend or a potential reversal. Even though it's often a continuation pattern, you should always wait for breakouts before deciding to buy or sell.
Key Takeaways
- In technical analysis, a triangle is a continuation pattern on a chart that forms a triangle-like shape.
- Triangles are similar to wedges and pennants and can be either a continuation pattern if validated or a powerful reversal pattern if it fails.
- Three potential triangle variations can develop as price action carves out a holding pattern: ascending, descending, and symmetrical triangles.
Understanding Triangle Chart Patterns
Technical analysis is a trading strategy where you create charts and patterns to identify trends in price movements for a single stock, a sector, or the entire market. You track these patterns over time to predict future price performance.
Triangle patterns get their name because the upper and lower trendlines meet at an apex on the right side, forming a corner. These patterns emerge when the trading range of a stock or security narrows.
To form the triangle, you connect the start of the upper trendline to the beginning of the lower one, completing the shape. The upper trendline links the highs, and the lower one links the lows.
Triangles are like wedges, which are price patterns with converging trendlines, and pennants, which are continuation patterns after a large movement—all used in technical analysis.
They can act as continuation patterns if validated or strong reversal patterns if they fail. You use triangles to spot when a stock's trading range narrows after an uptrend or downtrend.
As price action forms a holding pattern, three variations can appear: ascending, descending, and symmetrical triangles. When you see a breakout or failure of a triangular pattern, especially with heavy volume, it can be a strong bullish or bearish signal for resuming or reversing the prior trend.
Warning
Technical tools like these help you make predictions about future trends based on past performance. But keep in mind that the market is unpredictable and can swing in any direction at any time.
Types of Triangle Chart Patterns
There are three basic types of triangle chart patterns: ascending, descending, and symmetrical. I'll detail each one below, assuming you've seen a diagram showing how they look with converging trendlines.
Ascending Triangle
An ascending triangle is a breakout pattern that forms when the price breaches the upper horizontal trendline with rising volume—it's bullish.
The upper trendline is horizontal, showing nearly identical highs that form a resistance level. The lower trendline rises diagonally, indicating higher lows as buyers increase their bids.
Eventually, buyers push the price above the resistance, triggering more buying and resuming the uptrend. What was once resistance now becomes support.
Descending Triangle
A descending triangle is the inverted version of the ascending one and is a breakdown pattern. The lower trendline is horizontal, connecting nearly identical lows.
The upper trendline declines diagonally toward the apex. The breakdown happens when the price collapses through the lower horizontal support, resuming the downtrend. The former support line now acts as resistance.
Symmetrical Triangle
A symmetrical triangle has a diagonal falling upper trendline and a diagonally rising lower trendline. As the price approaches the apex, it will breach either the upper line for a breakout and uptrend or the lower line for a breakdown and downtrend.
You should watch for a volume spike and at least two closes beyond the trendline to confirm it's valid, not a false signal. Symmetrical triangles usually continue the pattern of the initial move before the triangle formed—so if it was an uptrend before, expect an upside break.
What Is Technical Analysis?
Technical analysis is a trading strategy that charts the past performance of a stock or asset to predict future price movements. It uses tools like historical prices, trading volumes, and patterns such as triangles.
How Do Triangles Work in Technical Analysis?
Triangles are chart patterns in technical analysis. They connect the beginning of the upper trendline to the lower one, with the upper linking highs and the lower linking lows for that security.
Are Triangle Patterns Bullish or Bearish?
It depends on the type. Ascending triangles are bullish, indicating an upward trend continuation or downtrend reversal. Descending triangles are bearish, pointing to downtrend continuation or uptrend reversal.
The Bottom Line
Technical analysis, including triangle chart patterns, requires practice and patience. Remember, the market can defy predictions at any time. If you use triangle patterns, only take positions after confirming a breakout in the price action.
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