Triangles

The patterns you see on your chart are the trails left by bulls and bears. Charts patterns can help you decide when a trend is likely to continue or to reverse. There are two main groups of patters: continuation and reversal. Continuation patterns include Triangles, Rectangles, Flags and Pennants. They suggest trading in the direction of the current trend.Reversal patterns include Double Tops and Double Bottoms, Head and Shoulders, Inverted Head and Shoulders. When several chart patterns point in the same direction, their signals are reinforced. For example, if an uptrendline gets broken when a Head and Shoulders top is being completed, they both confirm that the uptrend is ending. When different patterns gives conflicting messages, their signals cancel one another, and it is better not to trade.

A triangle is a congestion area whose upper and lower boundaries converge on the right.Triangles can be divided into three major groups, depending on their angles.

The upper and lower lines of symmetrical triangles converge at the same angles. If the upper line is inclined 30 degrees to the horizontal, then the lower line is also inclined 30 degrees. Symetrical triangles reflect a fair balance of power between bulls and bears and more likely to serve as a continuation patterns.

An ascending triangle has a relatively flat upper boundary and rising lower boundery. Its flat upper boundary shows that bulls are maintaining their strength and can lift prices to the same level, while bears are losing their ability to drive prices lower.

A descending triangle has a relatively flat lower boundary, while its upper boundary slants down. Its flat lower boundary shows that bears are maintaining their strenght and continue to drive prices down, while bulls are losing their capacity to lift prices.

Volume trends shrink as triangles get older.If volume jumps on a rally toward the upper boundary, an upside breakout is more likely. If volume becomes heavier when prices fall toward the lower boundary, a downside breakout is more likely. Valid breakouts are accompanied by a burst of volume - at least 50 percent above the average for the past 5 days. Valid breakouts occur during the first two thirds of a triangle. It is better not to trade breakout from the last third of a triangle. If prices stagnate all the way into the apex, they are likely to remain flat. Triangles provide a minimum target for a move following a breakout. Measure the height of a triangle at its base and project vertically from th epoint where the triangles was broken. If you are dealing with a small triangle in the midst of a dynamic trend, that minimum measurement is likely to be exceeded.