Chart Patterns: Triangles

Triangles are continuation patterns that show consolidation before the next move. Understanding the three types helps you anticipate breakout direction and magnitude. [DEFINITION] Triangle Pattern: A consolidation pattern formed by converging trendlines as price makes lower highs and/or higher lows, eventually breaking out in one direction. ### Types of Triangles **Ascending Triangle (Bullish)** - Flat upper resistance line - Rising lower support line - Buyers getting more aggressive; sellers holding firm - Usually breaks upward **Descending Triangle (Bearish)** - Declining upper resistance line - Flat lower support line - Sellers getting more aggressive; buyers holding firm - Usually breaks downward **Symmetrical Triangle (Neutral)** - Declining upper line AND rising lower line - Price compresses into the apex - Can break either direction; trade the breakout [TIP] Ascending and descending triangles have a directional bias, but no pattern is guaranteed. Always wait for the actual breakout. ### Trading Triangles **Entry:** On breakout from the triangle with volume **Stop-loss:** Inside the triangle (below support for longs, above resistance for shorts) **Target:** Height of triangle at its widest point, projected from breakout [FORMULA] Target = Breakout Price ± Triangle Height (at widest point) [EXAMPLE] Ascending triangle with resistance at $100 and support rising from $80 to $95. Triangle height = $100 - $80 = $20. Breakout above $100 targets $120. ### Breakout Timing [KEY] Breakouts typically occur between 50-75% of the distance to the apex. Breakouts very close to the apex tend to be less reliable and have weaker moves. ### Volume Pattern **Ideal volume behavior:** - Volume contracts as triangle forms - Volume expands on breakout [WARNING] Low volume breakouts often fail. The breakout should show conviction—ideally volume 50%+ above average. ### False Breakouts Triangles can produce false breakouts where price breaks one direction then reverses: **Protection strategies:** - Wait for close outside triangle (not just intraday) - Require volume confirmation - Use stop-loss inside triangle - Consider waiting for retest of breakout level [EXERCISE] A symmetrical triangle shows highs at $58, $56, $54 and lows at $48, $50, $52. Price breaks above the upper line at $55 on heavy volume. What's your target? |ANSWER| Triangle height at widest = $58 - $48 = $10. Target = $55 + $10 = $65. The symmetrical triangle gave no directional bias, but the upside breakout with volume suggests buying pressure. [SCENARIO] You identify an ascending triangle with 5 touches of resistance at $75. Price breaks above $75, you buy at $76. The next day, price falls back inside the triangle, closing at $73. What do you do? This is a failed breakout. Exit immediately—the pattern failed and there's no reason to hold. Your stop should have been triggered (placed inside the triangle, perhaps around $72). Don't wait and hope; failed breakouts often lead to moves in the opposite direction.