Triangle is one of the most popular patterns of technical analysis, which is related to three models of trend's continuation. There are three types of triangles: ascending, descending and symmetrical triangle. Each model has its geometry, direction and other features. There is also the 4th type of triangle - expanding triangle. This graphical pattern is rather rare and is not recommended to apply in trading. Why is it so? We will know just below.
Ascending triangle is more often represent bullish continuation model. Though very occasionally it can be reversal on bearish market. But the last is rather exceptional. The triangle consists from the upper border, which performs as resistance and incline upward level. Rules of building:
1. To form upper border, at least two touches (bounces) of price are required.
2. For incline upward level, at least two responds of price are required. Every subsequent minimum should be higher than the previous, otherwise the model will not be effective.
3. Purchase alert enters when the price breaks upper border of triangle (resistance). More often close of price above the border is considered to be the break up. In many cases the price bounces back to the border and retests the level. In this case, broken resistance will perform as support.
4. After the price closes above the upper border, it is possible to determine the minimal distance, where the price can go. For that, it is needed to measure the widest price range and lay it up from breaking point.
Descending triangle is quite the opposite to ascending. This is the bearish model of continuation. Bottom border and incline downward level serve as support line of price. All building rules are quite the opposite:
1. To form bottom border, at least two touches (bounces) of price are required.
2. For incline downstream level, at least two responds of price are required. Every subsequent maximum should be below the previous, otherwise the model will not be effective.
3. Selling alert enters when the price breaks bottom border of triangle (support). In many cases the price bounces back to the border and retests the level. In this case, broken supportive line will perform as resistance.
4. After the price closes below support line, it is possible to determine the minimal distance, where the price can go. For that, it is needed to measure the widest price range and lay it down the breaking point of triangle.
Symmetrical triangle represents a certain model of isosceles triangle. It consists of upward and downward levels, which form narrowing channel. The rules of building:
1. Four benchmarks are required for building: 2 on the top of downward level and 2 on the bottom on upward level. Only after that you can connect the lines.
2. Symmetrical triangle is also a continuation figure, but in contrast to ascending and descending triangles, it can continue both ascending and descending trends. Infrequently symmetrical triangle can reverse the principal tendency.
3. Purchase alert enters when the price breaks triangle up, and breaking the border down means selling alert.
4. There are two methods two define minimal objectives. The first is already known by us: measure the widest price range and lay it from the breaking point towards breaking side. The second method is to project the line in parallel with ascending (descending) level of the triangle. We will render it graphically: in case of breaking up of triangle, from A point we will lay AC cutting in parallel with ascending line of BD triangle.
Symmetrical triangle on ascending trend
Expanding triangle – this model of triangle is rather occasional and many “classic” authors of technical analysis do not recommend to apply it in trading. The point is that during formation of such a pattern a lot of false alerts emerge, which in its turn contradict to evolving of tendency. Structure of this triangle include ascending maximums and dropping minimums. Imagine how many loss positions you can get if you trade with the goal of breaking border of such a triangle up or down. Even experienced traders have difficulties while trying to distinguish such a pattern. More often it happens after false breaking of borders of other triangles take place (ascending, descending or symmetrical). In case when expanding triangle slowly transforms into symmetrical, the chart shows one more pattern of technical analysis - “diamond”.
Wedge – is the relative of symmetrical triangle, only differs with incline. Wedge relates to continuation patterns, but it is formed against the trend. There are two types of wedge: falling and rising wedge.
Falling wedge relates to bullish model. To form it, at least two (ideally three) resistance and two supportive points are required. Purchase alert is rendered by breaking of resistance.
Rising wedge relates to bearish model. To form it, at least two (ideally three) support and two resistance points are required. Selling alert is rendered by breaking of support.
Rising wedge (bearish model)
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