Triangles & PennantsTechnical Analysis
Triangles usually are continuation patterns indicating a trend will continue up or down, but they can also be reversal patterns. Triangles are either symmetrical, right angled ascending, or right angled descending. All triangles rely on breakouts to trigger entry, and typically have breakouts halfway to 3/4ths of the way through the pattern. A triangle will become a reversal pattern if the breakout occurs to the same side: if it begins from the bottom and breaks out to the bottom, it’s a bearish reversal triangle. They always occur before the apex, or the pattern is invalidated and becomes a consolidation.
Symmetrical Triangles require two sequentially lower peaks/swing highs, and two sequentially higher troughs/swing lows to draw. A trendline can be drawn down across highs and a trendline can be drawn up across lows, and must converge into an apex when extended into the future. Entry occurs at the breakout. Topside breakout signals long entry with a stop below the last swing low. Bottom breakout signals short entry with stop above last swing high.
Volume within the triangle’s movements decreases as the pattern develops. The breakout from the triangle needs rising or heavy volume to be confirmed, especially when breaking out to the topside.
The target is determined by measuring the widest part of the triangle from top to bottom. Project that distance up or down from the breakout. If projected up, look for swing highs or bearish reversal patterns at or near the target. If projected down, look for swing lows or bullish reversal patterns around that at or near the target.
A Pennant is a small symmetrical triangle or wedge shaped continuation pattern. They operate similar to symmetrical triangles, but form quicker. They are also measured differently. Measure the length of the “flagpole” (the distance from a reversal pattern to the pennant) and project it up or down from the breakout.
Right Angled Triangles consist of ascending triangles (usually bullish) or descending triangles (usually bearish). An Ascending triangle has a flat top and an upward sloping bottom. Ascending continuation triangles appear in an uptrend, while ascending reversal triangles appear at the end of downtrends. All ascending triangles require roughly two flat horizontal swing highs/peaks, and two rising swing lows/troughs.
A Descending triangle has a flat bottom, and a downward sloping top. Descending triangles have a flat bottom and downward sloping top. Descending continuation triangles appear in downtrends, while descending reversal triangles appear at the end of uptrends. They require two roughly equal flat swing lows/troughs, and two having 2 falling swing highs/peaks.
In both cases the breakout is the entry, and the stop is placed on the opposite side of the breakout, at the swing high or swing low that most recently occurred opposite from the breakout.
Volume should decrease as the pattern develops. After the breakout, volume must expand, especially if a topside breakout occurs. A top side breakout without pattern expansion has a substantially higher chance of being a false breakout.
The target for both Ascending and Descending Triangles are found the same way as Right Angled Triangles. Measure the distance of the widest section of the triangle, project that distance up or down from break, and look for swings near the target. Look for swings near the target. Swing highs if topside, swing lows if bottom side, and reversal patterns. if top breakout or swing lows if bottom breakout near the target. You can also clone the sloping line and use that as the distance to the target. Place on top of an ascending triangle, and on bottom of a descending triangle.
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