Triangles are a common chart pattern. Often viewed as a continuation pattern, the breakout direction ultimately determines if the prior trend is continuing or reversing. These four stocks have all experienced strong trends recently, so the breakout direction will help determine if that trend continues or reverses.

After a nice run higher through the last half of 2013, Apple (Nasdaq:AAPL) has been consolidating in 2014 below the $575.14 high. A downside breakout occurred on March 14 when the price broke triangle support near $528. Further selling during the week of March 17 will confirm the signal. Place a stop loss above $535 (triangle) or $540 (recent swing high) with a target at $458. The target is attained by taking the height of the pattern and subtracting it from the breakout price. If price reverses course and breaks above $540, it's an upside breakout and the height of the pattern is added to the breakout price for a target of $605.

After a nice run higher through the last half of 2013, Apple (Nasdaq: AAPL) has been consolidating in 2014 below the $575.

Boston Scientific (NYSE:BSX) doesn't have the prettiest triangle, but the consolidation still likely provides a trading opportunity. When the price broke below $13 on March 12 it broke the original triangle support. This trade calls for a target of $11.50 and a stop above $13.80. A bounce on March 14 has created another way to draw the triangle. For the new pattern to break, the price needs to drop below $12.60, with a target at $11.10 and a stop above $13.80. Shorting near the original breakout point of $13 provides a better risk to reward ratio, but goes against the dominant uptrend with little downside confirmation. If the price continues a rally, the upside break occurs at $13.80, providing a target of $15.30 and a stop near $12.60 or $13.

Boston Scientific (NYSE:BSX) doesn't have the prettiest triangle, but the consolidation still likely provides a trading opportunity.

Visa (NYSE:V) is consolidating below a high of $235.50. A downside break occurred on March 13 when the price moved below $223.Target is $201 with a stop above $227.50. The price has also been moving in a small horizontal channel though; waiting for continued selling pressure below the March 14 low at $218.56 will help confirm the downside break. If the price rallies, a break above the recent swing high at $228.39 breaks both patterns, putting the target at $250 with a stop near $220.

Visa (NYSE:V) is consolidating below a high of $235.50.

Whole Foods (Nasdaq:WFM) has been in a downtrend since putting in a October high at $65.59. The actual triangle (black lines) has very similar highs and lows, making it more of a range than a triangle. A break below $50.40 indicates the downtrend is continuing. The target is $45.40 with a stop above $55.75. The downside break is a ways away, so if the price breaks above $55.75 first, it signals a further rally. Target is $60.75 with a stop near $50.40. This pattern is not narrowing very much (more range like), so the reward to risk ratio is not ideal. Placing a stop behind behind a recent swing high or low (yet to be determined) following breakout can improve the reward relative to risk. 

Whole Foods (Nasdaq:WFM) has been in a downtrend since putting in a October high at $65.59.

The Bottom Line

Triangles are a useful chart pattern because they provide an entry, stop loss and target. The main draw back to any chart pattern is false breakouts. A false breakout occurs when a trade occurs in one direction, then proceeds to reverse and break in the other direction, or just fails to trend at all (moves sideways). Keep position size in line with account size and risk tolerance, so if a trade doesn't work out, very little damage is done to the overall trading account.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  10. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  3. Indicator

    Indicators are statistics used to measure current conditions ...
  4. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
  5. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  6. Sucker Yield

    When an investor has essentially risked all of his capital for ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!