Triangle Chart Patterns: Technical Analysis

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Triangle Chart Pattern: Triangles Chart patterns also known as continuation patterns are one of the very important chart patterns. Every trader should recognize the triangle chart pattern formation as it indicates the continuation of bullish or bearish market. Understanding of Triangle pattern helps trader to identify the correct time to enter into market.

How to identify Triangle Chart Pattern? Triangles are a commonly found in the price charts of financially traded assets (stocks, bonds, futures, etc). The pattern derives its name from the fact that it is characterized by a contraction in price range and converging trend lines (Support and Resistance level), thus giving it a triangular shape.

As we can see, above picture depicts the triangle formation; while at the beginning of triangle formation price range is widest and as market continues this price range narrows down.

What does Triangle pattern signify? Triangle chart pattern signify a tussle between bull and bearish market until either bull market push the price of security either higher than resistance level or bear market push the prices lower than support level.

Triangle Chart Patterns have five characteristics:

Resistance level: Horizontal level of resistance (bullish, or ascending triangle), or a down-trending level of resistance that is converging with the support level (bearish, or descending triangle).

Support level: Up-trending level of support that is converging with the resistance level (bullish, or ascending triangle), or a horizontal level of support (bearish, or descending triangle).

Flag pole: The trend preceding the formation of the triangle. The flag pole spans the distance from the beginning of the trend to the highest point of the triangle (bullish, or ascending triangle), or the flag pole spans the distance from the beginning of the trend to the lowest point of the triangle (bearish, or descending triangle).

Breakout point: The point at which the currency pair breaks up above the horizontal level of resistance (bullish, or ascending triangle), or the point at which the currency pair breaks down below the horizontal level of support (bearish, or descending triangle).

Price projection: The price to which the currency pair will most likely fall after it has broken out of the triangle formation (bearish, or descending triangle), or the price to which the currency pair will most likely rise after it has broken out of the triangle formation (bullish, or ascending triangle). The distance the currency pair is projected to move is equal to the height of the flag pole.

Types of Triangle Chart Patterns: There are basically three types of chart patterns.

The Ascending Triangle: The ascending triangle is formed when the market makes higher lows and the same level highs. These patterns are normally seen in an uptrend and viewed as a continuation pattern as buying demand gain more and more control, running up to the top resistance line of the pattern. While you normally will see this pattern form in an uptrend, if you do see it in a downtrend it should be paid attention to as it can act as a powerful reversal signal.

The Descending Triangle: The descending triangle is formed when the market makes lower highs and the same level lows. These patterns are normally seen in a downtrend and viewed as a continuation pattern as the bears gain more and more control running down to the bottom support line of the pattern. While you normally will see this pattern form in a downtrend, if you do see it in an uptrend it should be paid attention to as it can act as a powerful reversal signal. Below image shows Descending Triangle.

The Symmetrical Triangle: The symmetrical triangle is formed when the market makes lower highs and higher lows and is commonly associated with directionless markets as the contraction of the market range indicates that neither the bulls nor the bears are in control. If this pattern forms in an uptrend then it is considered a continuation pattern if the market breaks out to the upside and a reversal pattern if the market breaks to the downside. Similarly if the pattern forms in a downtrend it is considered a continuation pattern if the market breaks out to the downside and a reversal pattern if the market breaks to the upside.

In the following sections we will look into details for each type triangle pattern.

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