The triangle is one of the simplest patterns, and also one of my favorites. While not every triangle breakout results in a big move, the pattern typically produces at least a short-term profit opportunity. Since a triangle is created by the price range of a stock narrowing over time, risk can also be controlled quite easily. For technical trading, you need an entry price, a stop-loss (risk management) and some sort of a profit objective. Triangle patterns provide all three of these, as shown in these four stocks that are very close to breakout points.
SEE: Continuation Patterns: Introduction To Triangles
Altera (Nasdaq:ALTR) has two triangle patterns occurring - one longer and one shorter-term. The longer-term triangle began in September 2012. Since it is a larger pattern, the breakout of this pattern will have significant sway in the direction of this stock over the next 6 to 12 months. A breakout occurs if the price rises above $35, or drops below $31. These are also the stop-loss levels; $31 is the stop for a $35 breakout, and vice versa. If the breakout is to the upside, the target is $43, while the downside breakout target is $23.
The shorter-term triangle began in April 2013, and is worth watching since its breakout will likely foreshadow the breakout direction of the larger triangle. The upside breakout point is $33.50 and the downside breakout point is $31.50. Targets for this pattern are $35.50 (upside) or $29.50 (downside), but can likely be altered to the longer-term targets if the longer-term pattern is broken.
Amdocs (NYSE:DOX) has been in an ascending triangle since the start of March. If the price breaks above $36.50, the pattern is broken and the price is likely to continue higher toward the $38.75 target. On the other hand, if the price drops below $35.35, it'll be a downside breakout, with a target of $33.10. In the case of either breakout direction, the opposite breakout price is used as a stop-loss. On the upside breakout, also watch the 52-week high at $36.73. This price is an alternate entry point. A move beyond this level confirms the triangle breakout and also provides a longer-term bullish signal.
(NYSE:DOX) has been in ascending triangle since the start of March. If the price breaks above $36.50, the pattern is broken and the price is likely to continue higher toward the $38.75 target. On the other hand, if the price drops below $35.35, it'll be a downside breakout, with a target of $33.10. In the case of either breakout direction, the opposite breakout price is used as a stop-loss. On the upside breakout, also watch the 52-week high at $36.73. This price is an alternate entry point. A move beyond this level confirms the triangle breakout and also provides a longer-term bullish signal.
SEE: Analyzing Chart Patterns Tutorial: Triangles
H&R Block (NYSE:HRB) has been moving within wedge since the start of April. A wedge is very similar to a triangle, except that the whole pattern is slanted. When the stock hit an intra-day low of $27.24 on June 24, this actually broke the pattern to the downside, indicating a target of $25. The stop for this trade is $30.40, which is the also the breakout point to the upside. If the stock manages to recover and moves above $30.40, it will be a powerful signal. Not only does it break the pattern, but it will have done so after a false downside breakout. While this scenario is less likely at the current time, the upside target is $33.40, and potentially higher given the long-term uptrend.
Fulton Financial (Nasdaq:FULT) just bounced off the lower triangle trendline indicating a bounce toward the top of the triangle. Eleven dollars is the breakout on the downside, and the stock could still move below this. If it does, the target is $9.60. On the other hand, June 26 saw a near 3% bounce off the trendline, making it appear the stock is on its way to test the $11.91 pattern high (and 52-week high). If Fulton breaks above this high, the target is $13.30. For the upside breakout, use $11 as the stop-loss level, and for the downside breakout use $11.91.
SEE: Technical Analysis Tutorial
The Bottom Line
Triangles are great patterns to trade as they provide entry and stop-loss prices, as well as a profit objective. When the price breaks the pattern, typically the move that ensues is sharp and aggressive, although this may not always occur. If a breakout occurs, and then the price swiftly moves back in the other direction - called a "false breakout" - watch for a breakout on the other side of the pattern. Triangles are good trading candidates in both up and down markets, the only time the pattern isn't particularly useful (on average) is when the broader market is in an a long-term, low-volatility and trendless state.
At the time of writing, Cory Mitchell did not own shares in any of the companies mentioned in this article