TRIANGLES
Let's
begin our treatment of continuation patterns with the
triangle. There are three types of
triangles-symmetrical, ascending, and descending. (Some
chartists include a fourth type of triangle known as an
expanding triangle, or broadening formation. This is
treated as a separate pattern later.) Each type of
triangle has a slightly different shape and has
different forecasting implications.
The
symmetrical triangle shows two converging trend lines,
the upper line descending and the lower line ascending.
The vertical line at the left, measuring the height of
the pattern, is called the base. The point of
intersection at the right, where the two lines meet, is
called the apex. For obvious reasons, the symmetrical
triangle is also called a coil.
The
ascending triangle has a rising lower line with a flat
or horizontal upper line. The descending triangle, by
contrast, has the upper line declining with a flat or
horizontal bottom line. Let's see how each one is
interpreted.
THE SYMMETRICAL
TRIANGLE
The
symmetrical triangle (or the coil) is usually a
continuation pattern. It represents a pause in the
existing trend after which the original trend is
resumed. The prior trend was up, so that the percentages
favor resolution of the triangular consolidation on the
upside. If the trend had been down, then the symmetrical
triangle would have bearish implications.
The
minimum requirement for a triangle is four reversal
points. Remember that it always takes two points to draw
a trend line. Therefore, in order to draw two converging
trend lines, each line must be touched at least twice.
The triangle actually begins at point, which is where
the consolidation in the uptrend begins. Prices pull
back and then rally to peak. However, is lower than
previous peak point. The upper trend line can
only be drawn once prices have declined from second peak
point.
Only when prices have rallied
can the lower up slanting line be drawn. It
is at this point that the analyst begins to suspect the
he or she is dealing with the symmetrical triangle. Now
there are four reversal points and two
converging trend lines.
While
the minimum requirement is four reversal points, many
triangles have six reversal points.
This
means that there are actually three peaks and three
troughs that combine to form five waves within the
triangle before the uptrend
resumes.
Triangles and Symmetrical
Triangle Chart Patterns