Basically what's a triangle? According to stockcharts.com, these are continuation patterns. Continuation pattern are formed after a trend is established, but instead of moving up all the way, the price goes up and down in a certain fashion, consolidating in lower volume. When a certain breakout price is breached, the stock moves in a direction based on the continuation pattern seen. There is also a price objective for these types of pattern, but the target price (tp) shouldn't be taken literally.
To be able to see triangle patterns, one must be able to draw support lines and resistance lines. I'm not talking about those horizontal ones, i'm talking about those trendlines which are oblique. A triangle pattern is just a pattern that you'll see if you extend these two lines until a point where they meet.
There are 3 types of triangle patterns:
1. Ascending triangle - this is where we have a horizontal resistance line above and a positive sloping support line below. The price goes up and down between these two lines until a point where a decision has to be made - usually the price will break the resistance line and have upside bias.
Below are some examples of ascending triangle. Pay attention to Swiber - a ascending triangle that failed.
2. Descending triangle - this is where we have a horizontal support line below and a negative sloping resistance line on top. Again the price goes in between the 2 trendlines until a point where a decision has to be made - usually the price will move down with a downside bias.
3. Symmetrical triangle - this is where there is a positive sloping support line and a negative sloping resistance line. Neither bullish nor bearish - it depends on other indicators as it could move up or down.
The following are keys points of the triangle formation:
1. The price need to be within the two trendlines. Small whipsaw is okay though, have to use judgment. Need to see at least 2 points touching the resistance line and at least 2 points touching the support line. If evenly spread out, is even better.
2. The other thing is that if the volume is trending down while the price is inside the triangle, it adds more weight that the pattern is really a triangle formation. Volume, if it surges after breaching the breakout price, will double confirm the triangle pattern.
3. Breakout price for all triangles follow these few guidelines:
a. Price moving above resistance line is bullish sign for all triangles, even for bearish descending triangle. Adds more weight if volume surges while breaking out
b. Price moving below supporting line is bearish, even for bullish ascending triangle. Same thing for volume.
It's important to take note that while a certain pattern can have bullish tendencies, it will only be true if it breaks above the resistance line. Otherwise, it's very bearish. Same thing for patterns with bearish tendencies.
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