Triangular patterns are a collective of candles that form a general graphic pattern over time in the formation of a triangle. They can be ascending triangles, descending triangles or symmetrical triangles.
For all intents and purposes, the easy way to spot one of these is to draw a trend line up and down of the most recent price action of the in-game stock. If you find that the stick wraps in an apex, it is likely to be forming a triangular pattern.
These can be called by different names. Some like to call them pennants, others like to call them wedges. Apart from maybe a few shades here or there, they’re all basically the same – graphic patterns that resemble a triangle.
HOW TO READ A TRIANGLE CHART TEMPLATE
Triangular models start with a wider price range and volatility. Over a period of time, they contract in a peak of lower volatility and shrinking price range. This is accompanied by a series of higher peaks and higher bottom, or lower peaks and lower bottom or a symmetrical lateral pennant of higher ups and downs. Some variations in this may occur, such as a flat base or a flat top.
Regardless of the
specifics of the formation, the goal as a trader is to determine the path of least resistance once the stock leaves the formation. Along these lines, we typically see ascending triangles resolve them downwards; Descending triangles usually resolve upwards.
The action of volume and price are also fundamental to read a triangular pattern. Each graphic template should tell you a story, just like candlestick models. Do bulls absorb downward pressure in a descending triangle? Or, do bears sell to bulls in an ascending triangle?
Each model will show you, if you look carefully enough, the path of least resistance on the horizon. Once spotted, the triangle pattern gives you a big risk to reward the setup for your business plan.
Let’s take a look at each type of triangular model a little more in-depth.
Descending triangle patterns
The descending triangle pattern is one of the most recognizable chart patterns in trading. It is usually formed as a reversal at the end of a downtrend or as a continuation pattern in an uptrend. It offers bulls the ability to recharge after taking profit in a stock.
Often labeled as a descending wedge, it’s important to note that the stock can resolve in either direction, up or down. For this reason, it is always better to respect your stops. However, it is generally assumed to be a bullish pattern.
One of the most popular is the breakout strategy. In this strategy, you wait for the stock to put a series of volatility contractions, then buy on the break of the upper trend line.
As shown in the previous example, you want to measure the widest part of the triangle and then set it as the target distance when overlapping from the breakout point. Your stop would be below the latest model minimum.
Ascending triangle model
Patterns of ascending triangles can also resolve in both directions. Just like its descendant counterpart, you always want to stick to your stops if you’re wrong about trading. However, ascending triangle patterns are generally accepted as bearish patterns.
Ideally, what you’ll want to see is a series of higher lows that form in the title. To take a bearish position, we recommend looking for high selling pressure as the stock reaches new highs in the lineup.
Once the stock reaches its peak and the sale has done its job, look for a fault entry through a signal line or lower trend line.
In the example above, notice how as the stock advances, selling pressure prevents it from setting a new high. It is like “walking the table”. The end result is inevitable, it just takes a little time to get to the end of the table.
For rumors, take your position on the distribution, risking the highs. Goals can be set at the minimum of the structure or by measuring the wide part of the triangle and applying it to the breakout point.
Symmetrical triangle patterns
Symmetrical triangle patterns are very similar to pennants. As the structure forms, you expect to see higher bass and lower highs. This results in an apex formation. However, unlike ascending or descending triangles, it can be a bit more difficult to predict the direction of the slightest resistance at the beginning. Sometimes they can feel a bit 50/50 in nature.
Similar to the
volatility contraction model we discuss in our best small account strategy, it can lead to big gains under the right circumstances. Here are some graphical examples of what to look for in a symmetrical triangular model.
In this example, we have a false break. As you can see, it is sometimes difficult to judge such a narrow model. However, as the model evolved and recovered, you could reverse your bias and risk the latest low for a long trade.