What Is a Triangle Chart Pattern?
A triangle is a chart pattern is a tool used in technical analysis. The triangle chart pattern is named as such because it resembles a triangle. It is depicted by drawing trendlines along a converging price range, that connotes a pause in the prevailing trend. Technical analysts categorize triangles as continuation patterns of an existing trend or reversal. Despite being a continuation, traders should look for breakouts before they make a move to enter or exit a position.
Key Takeaways
- In technical analysis, a triangle is a continuation pattern on a chart that forms a triangle-like shape.
- Triangles are similar to wedges and pennants and can be either a continuation pattern, if validated, or a powerful reversal pattern, in the event of failure.
- There are three potential triangle variations that can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles.
Understanding Triangle Chart Patterns
Triangle chart patterns are used in technical analysis, which is a trading strategy that involves charts and patterns that help traders identify trends in the market to make predictions about future performance. Triangle patterns are aptly named because the upper and lower trendlines ultimately meet at the apex on the right side, forming a corner. These patterns are formed once the trading range of a stock or another security becomes narrow.
Connecting the start of the upper trendline to the beginning of the lower trendline completes the other two corners to create the triangle. The upper trendline is formed by connecting the highs, while the lower trendline is formed by connecting the lows.
Triangles are similar to wedges (price patterns marked by converging trendlines) and pennants (continuation patterns that are formed when an asset shows a large movement), which are also used in technical analysis. They can be either a continuation pattern, if validated, or a powerful reversal pattern, in the event of failure. Traders use triangles to highlight when the narrowing of a stock or security's trading range after a downtrend or uptrend occurs.
There are three potential triangle variations that can develop as price action carves out a holding pattern, namely ascending, descending, and symmetrical triangles. Technicians see a breakout, or a failure, of atriangular pattern, especially on heavy volume, as being potent bullish or bearish signals of a resumption, or reversal, of the prior trend.
Technical tools are meant to help make predictions about future trends based on past performance. But remember that the market can be very unpredictable and can swing in any direction at any time.
Types of Triangle Chart Patterns
The following diagram shows the three basic types of triangle chart patterns: the ascending, descending, and symmetrical triangles. We go into more detail about what they are and how they work below.
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Ascending Triangle
An ascending triangle is a breakout pattern that forms when the price breaches the upper horizontal trendline with rising volume. It is a bullish formation.
The upper trendline must be horizontal, indicating nearly identical highs, which form a resistancelevel. The lower trendline is rising diagonally, indicating higher lows as buyers patiently step up their bids.
Buyers eventually lose patience and rush into the security above the resistance price, which triggers more buying as the uptrend resumes. The upper trendline, which was formerly a resistance level, now becomes support.
Descending Triangle
A descending triangle is an inverted version of the ascending triangle and is considered a breakdown pattern. The lower trendline should be horizontal, connecting near identical lows. The upper trendlinedeclines diagonally toward the apex.
The breakdown occurs when the price collapses through the lower horizontal trendline support as a downtrend resumes. The lower trendline, which was support, now becomes resistance.
Symmetrical Triangle
A symmetrical triangle is composed of a diagonal falling upper trendline and a diagonally rising lower trendline. As the price moves toward the apex, it will inevitably breach the upper trendline for a breakout and uptrend on rising prices or breach the lower trendline forming a breakdown and downtrend with falling prices.
Traders should watch for a volume spike and at least two closes beyond the trendline to confirm the break is valid and not a head fake. Symmetrical triangles tend to be continuation break patterns, which means they tend to break in the direction of the initial move before the triangle forms. So if an uptrend precedes a symmetrical triangle, traders would expect the price to break to the upside.
What Is Technical Analysis?
Technical analysis is a type of trading strategy where traders analyze markets and make predictions about future market movements based on past performance. This trading strategy uses tools and techniques to evaluate historical data, including asset prices and trading volumes, rather than business results. Some of the tools used include charts and graphs, including triangles and candlesticks.
How Do Triangles Work in Technical Analysis?
Triangles are chart patterns used in technical analysis. Named because they look like triangles, these patterns connect the beginning of the upper trendline to the beginning of the lower come. The upper line connects the highs while the lower line connects the lows in that security.
Are Triangle Patterns Bullish or Bearish?
That depends on the type of triangle. Ascending triangles tend to be bullish as they indicate the continuation of an upward trend. In some cases, they may also point to the reversal of a downtrend. A descending triangle, on the other hand, are bearish. That's because they point to the continuation of a downtrend or the reversal of an uptrend.
The Bottom Line
Technical analysis requires a great deal of practice and patience. This is true of any type of trading tool used in this strategy, including triangle chart patterns. It's important to keep in mind that the market is very unpredictable and can swing in any direction even if these tools can be used to make predictions about trends. If you're going to use triangle patterns, make sure you take positions only after you confirm a breakout in the price action of the security in question.
