Triangles

Symmetrical Triangle

A symmetrical triangle is a chart formation where the slope of the price’s highs and the slope of the price’s lows converge together to a point where it resembles a triangle.

In this situation the market is making lower highs and higher lows. This means that there is both less long (buying) and short (selling) in the market, a stalemate situation. It can also be considered a type of consolidation.

T1

Above, neither the buyers nor the sellers could push the price in either direction. When this happens we get lower highs and higher lows.

As the triangle forms, it means that a breakout is getting closer, the market has to go somewhere. At this time we don’t know what direction the market will move, breakout. Eventually, one side of the market will collapse.

 

Speculative entry orders can be placed, above the slope of the lower highs and below the slope of the higher lows. This way we are hedging our options and will close the position that doesn’t execute.

T2

 

Ascending Triangle

This type of formation occurs when there is a resistance level and a slope of higher lows.

What happens during this time is that there is a certain level of resistance that the buyers cannot seem to exceed at this time. However, they are gradually starting to push the price up as evident by the higher lows.

T3

Above, it is evident that the buyers are gaining strength because they are producing higher lows. They are putting pressure on the upper resistance level and as a result, a breakout is inevitable.
If resistance is too strong the price will again fall.

In many cases, the buyers will win this battle and the price will break out, upwards past the resistance.

All investors should be ready for movement in EITHER direction. There are always supprises in the markets.

In this case, we would set an entry order above the resistance line and below the slope of the higher lows.

T4

You can see that the retracement exceeded the distance of the height of the triangle formation.

Descending Triangle

With descending triangles, there is a string of lower highs which forms the upper line. The lower line is now the support level in which the price cannot appear to break.

T5

Above, you can see that the price is gradually making lower highs which tell us that the sellers are putting pressure on the buyers.

As previously stated, “most of the time”, the price will eventually break the support line and continue to downwards.

However, in some cases the support line will again be too strong, and the price will continue upwards.

In this case, we could place entry orders above the upper line (the lower highs) and below the support line. In anticipation of both market directions.

T6

After the upside breakout, the price proceeded to surge higher, exceeding the vertical distance of the height of the triangle.