Do you see a triangle?
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Even though a continuation pattern is supposed to breakout in the direction of the long-term trend, this is not always the case.
If the pattern is less than 3 weeks, it is usually considered a pennant. Typically, the time duration is about 3 months. The time-span of the pattern can be measured from the apex convergence of upper and lower lines back to the beginning of the lower trend line base. After all, as the apex approaches, a breakout must occur sometime. The future direction of the breakout can only be determined after the break has occurred.
Sounds obvious enough, but attempting to guess the direction of the breakout can be dangerous. Even though a continuation pattern is supposed to breakout in the direction of the long-term trend, this is not always the case.
For a break to be considered valid, it should be on a closing basis. The breakout should occur with an expansion in volume, especially on upside breakouts. After the breakout up or down , the apex can turn into future support or resistance.
There are two methods to estimate the extent of the move after the breakout. First, the widest distance of the symmetrical triangle can be measured and applied to the breakout point. Second, a trend line can be drawn parallel to the pattern's trend line that slopes up or down in the direction of the break.
The extension of this line will mark a potential breakout target. The reversal patterns can be especially difficult to analyze and often have false breakouts. Even so, we should not anticipate the direction of the breakout, but rather wait for it to happen. Further analysis should be applied to the breakout by looking for gaps, accelerated price movements, and volume for confirmation.
Confirmation is especially important for upside breakouts. Flag patterns are characterized by a small rectangular pattern that slopes against the prevailing trend, while pennants are small symmetrical triangles that look very similar.
Figure 26 — Pennant Example — Source: These patterns typically last no longer than a few weeks, since they would then be classified as rectangle patterns or symmetrical triangle patterns. Rising wedges are bearish chart patterns that occur when trend is moving higher and the prices are converging and the prevailing trend is losing momentum. Falling wedges are bullish chart patterns that occur when the trend is moving lower and prices are converging, which signifies that the bearish trend is losing momentum and a reversal is likely.
For example, most traders watch for a diverging relative strength index or moving average convergence-divergence trend line that confirms a reversal is likely to occur. There are three main types of gaps: Breakaway gaps, runaway gaps, and exhaustion gaps. Breakaway gaps form at the start of a trend, runaway gaps form during the middle of a trend, and exhaustion gaps for near the end of the trend.
For more insight, read Playing the Gap. But, they act in a similar fashion and can be a powerful trading signal for a trend reversal. The patterns are formed when a price tests the same support or resistance level three times and is unable to break through. Figure 27 — Triple Bottom Example — Source: The chart patterns looks similar to a Cup and Handle pattern but without the handle.
For traders with an eye for pattern recognition, it is enough to profitable trade. The pair enjoyed a dominant bullish trend for the whole summer that culminated with a move above 1. However, around that area, it formed a lower highs series. Moving forward on the right side of the chart, we see the price making three lower lows. Again, this signals a triangle in the makings. The break higher stalls with three lower highs series, making it another possible triangular formation for pattern recognition traders to use.
Now step back a bit and have a close look at the chart above. Do you see any possible triangle? The series mentioned earlier is enough to imagine triangles and to trade their break.
Every triangle has a measured move or a so-called thrust that must be reached. More about this a bit later. Chapter 2 — Ascending and Descending Triangles A trader that rides a strong trend knows the market will pause from time to time to build energy before the next breakout. This is only normal, as nothing rises or falls in a vertical line. When the market stalls, the pattern recognition approach comes in handy. Traders look at what the pattern might be and how to trade it in such a way to adapt to the ongoing trend.
Triangles are great tools to use in such an approach.
In the study of technical analysis, triangles fall under the category of continuation patterns. There are three different types of triangles, and each should be closely studied. These formations.
[ Chart patterns are an integral part of technical analysis, but successful traders combine these techniques with technical indicators and other forms of technical analysis to maximize their odds. In Technical Analysis of Stock Trends (), Edwards and Magee suggest that roughly 75% of symmetrical triangles are continuation patterns and the rest mark reversals. The reversal patterns can be especially difficult to analyze and often have false breakouts.
The triangle patterns are common chart patterns every trader should know. Triangle patterns are important because they help indicate the continuation of a bullish or bearish market. They can also assist a trader in spotting a market reversal. Triangles, ascending & descending chart patterns, technical analysis, pennants, continuation patterns. Usually with a Triangle pattern, the price consolidation period consists of higher lows and lower lows, forming the shape of a "triangle". When the resistance and support lines (see.
Keep in mind that technical analysis patterns like an ascending or descending triangle were researched on the stock market, not on the FX one. As such, the price action on the Forex market is a bit different than on the stock one, and that difference is seen in the way the triangle forms. The triangle pattern is known as a bilateral pattern, which means that after a break-out the trend could either continue or reverse. There are basically 3 types of triangles and they all point to price being in consolidation: symmetrical (price is contained by 2 converging trend lines with a similar slope), ascending (price is contained by a .