Triangles usually represent continuation patterns. A triangle is a congestion area where resistance, forming the upper boundary, and support, forming the lower boundary, converge on the right. The triangle’s upper boundary represents sellers overpowering buyers, preventing the market from rising. Its lower boundary represents buyers overpowering sellers, preventing the market from declining. As the two boundaries start to converge, a breakout forms.

There are 3 types of triangles:

1) Symmetrical Triangles-

- A fair balance of power between bulls and bears. Both are equally confident since bulls keep paying up and bears keep selling lower.
- Represented by the convergence of an ascending support line and a descending resistance line.
- The breakout is likely to resume in the direction of the trend that preceded the formation of the triangle.

2) Ascending Triangles
- These triangles are bullish patterns, with a flat upper boundary and a rising lower boundary, converging on the right.
- The flat boundary shows that bulls are becoming more aggressive while bears are losing their ability to drive down the prices. Bears are defending the line that they’ve drawn, but if they collapse and the attacking bulls succeed, its breakout is likely to be steep.
- An ascending triangle is more likely to result in an upside breakout, thus the logic of buying upside breakouts from ascending triangles is derived.

3) Descending Triangles
- These triangles are bearish patterns, with a flat lower boundary and a declining upper boundary converging on the right.
- The flat boundary shows that bears are becoming more aggressive while bulls are losing their ability to drive up the prices. Bulls are defending the line that they’ve drawn, but if they collapse and the attacking bears succeed, its break is likely to be sharp.
- A descending triangle is more likely to result in a downside breakout, thus the logic of shorting downside breakouts from descending triangles is derived.

Broadening Formation (Inverted Triangle)

This inverted triangle is basically a triangle turned backwards and is relatively rare. Instead of trendlines converging at the right, the trendlines actually diverge in a broadening formation. It is also known as a megaphone top.This type of pattern usually occurs at major tops and is usually a bearish formation.

MORE ABOUT TRIANGLES

This entry was posted on Thursday, August 27th, 2009 at 10:15 am and is filed under Learn The Stock Market, Technical Analysis. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.