A triangle is a price pattern where the price moves within a narrowing price area. The pattern shows indecision or that the market is taking a breather. Once the price breaks out the pattern a trend often follows. Triangles are one of the more popular chart patterns, providing an entry point area, stop loss location and profit target. Here are four triangle patterns forming right now.

Michael Kors Holdings Limited (KORS) has been falling since early 2014, when it traded as high as $101.04. In may of 2015 the stock gapped from above $60 to below $50. The price has continued to move lower but is no longer in free-fall. A symmetric triangle has formed since the $36.63 low on August 24. If the price rallies above $44.45 it signals the price could be breaking out of the pattern to the upside. At its widest point the triangle is $9.19 in height. Add this to the upside breakout price to attain an approximate target of $53.64.The price breaks below the triangle at $38.70. If that occurs the downtrend is likely continuing and the target is $29.51 ($38.70 minus $9.19). A stop loss is traditionally placed just outside the opposite side of the triangle from the breakout. Since the trendlines of the triangle are sloping the stop loss levels will change over time, reducing the risk of the trade.  Initially, the opposite breakout price can be used as a stop loss. For example, if the price has an upside breakout, the downside breakout price ($38.70) is used as a stop loss on the trade.

KORS daily chart in symmetric triangle pattern

Medivation Inc. (MDVN) is also in a downtrend after reaching a high of $70.79 in March. In mid-September a triangle pattern began forming, and the selling has slowed as the pattern has progressed into December. The upside breakout is $43, although a rally above the November 19 intraday high of $43.19 provides more confirmation. These levels can also be used for stop loss locations on short trades in the event of a downside breakout. A downside breakout occurs on a drop below $37.63. A stop loss on a long position is placed just below this. The triangle is quite wide at $14.57, providing an upside target of $57.57 or a downside target of $23.06.

MDVN daily chart in descending triangle pattern

For MGIC Investment Corp. (MTG) consider movement above the December 1 high of $9.66 an upside breakout. The price has been consolidating right at the top of the short-term triangle for several sessions, so a rally above the consolidation is a positive sign. A stop loss on the long goes at $9.19, which is also the breakout point to the downside. The pattern is $1.18 in height, so add or subtract this from the breakouts points to get targets of $10.84 to the upside or $8.01 to the downside respectively.

MTG daily chart in triangle pattern

Sunoco Logistics Partners L.P. (SXL) is also in a downtrend, having peaked at $52.47 in late 2014. Bulls are hoping for a breakout above the top of the triangle at $31.50. Bears want to see the price fall below $27, breaking the triangle to the downside. Depending on which direction the price breaks out, use the opposite breakout point as a stop loss. Based on a triangle height of $7.45 the upside target is $38.95 and the downside target is $19.55.

SXL daily chart in triangle pattern

The Bottom Line

Triangles present an opportunity to get into a stock when it is on the verge of another (possible) trending move. Nothing in trading is guaranteed though. There are a few issues with triangles, and chart patterns in general. Mainly, just because the price moves out of the pattern doesn't mean it will see a big trending move; it could continue to move sideways. The profit targets are also somewhat arbitrary; the price may not reach them or move right through them. Even with these draw backs triangles are the spring board for many trending moves. Ideally trade triangles in a demo account, before risking real capital, to see if triangle patterns could potentially be incorporated into your trading plan