In the study of technical analysis, triangles fall under the category of continuation patterns. There are three different types of triangles, and each should be closely studied. In this article, we have focused on the three kinds of triangles, the ascending triangle, the descending triangle and the symmetrical triangle.
1. Symmetrical Triangle
A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it looks like a triangle. The Symmetric triangle is considered a trend continuation pattern and may be formed in both uptrends and downtrends. The direction of the trend preceding the pattern’s appearance is confirmed in case of its occurrence on the chart.
The chart below illustrates the symmetrical triangle and the price targets.
As we can see, the ascending triangle has a horizontal resistance line, with a rising support trend line. The trend line must be tested at least twice for the triangle to be valid. Measuring the distance from the lowest point to the horizontal resistance level, we obtain the price objective by projecting the distance on the break out of the ascending triangle. Stops are placed at the second trough (or low) formed just before the break out or at a more valid price level.
2. Ascending Triangle
This type of triangle chart pattern occurs when there is a resistance level and a slope of higher lows. The ascending triangle is a mediocre performer despite its reputation as a reliable chart pattern. In fact, the ascending triangle performs best when the breakout is downward, especially in a bear market.
The chart below illustrates the ascending triangle and the price targets.
In the chart above, you can see that the buyers are starting to gain strength because they are making higher lows. They keep putting pressure on that resistance level and as a result, a breakout is bound to happen.
Most of the time, the price will in fact go up. The point we are trying to make is that you should not be obsessed with which direction the price goes, but you should be ready for movement in EITHER direction.
In this case, we would set an entry order above the resistance line and below the slope of the higher lows.
3. Descending Triangle
The descending triangle patterns indicate a move to the downside. The descending triangle is characterized by a horizontal support level followed by a falling resistance trend line. The price objectives are similar to that of the ascending triangle as shown in the chart below.
In the chart above, you can see that the price is gradually making lower highs which tell us that the sellers are starting to gain some ground against the buyers.
Now most of the time, the price will eventually break the support line and continue to fall. However, in some cases the support line will be too strong, and the price will bounce off of it and make a strong move up.
Image source- Dailyfx