DEFINITION of 'Triangle'
A triangle is a technical analysis pattern created by drawing trendlines along a price range that gets narrower over time because of lower tops and higher bottoms. Variations of a triangle include ascending, descending and symmetrical triangles. Triangles are very similar to wedges and pennants.
BREAKING DOWN 'Triangle'
Triangle patterns are aptly named because the upper and lower trendlines ultimately meet at the apex on the right side, forming a corner. Connecting the start of the upper trendline to the start of the lower trendline then completes the other two corners to complete the triangle. The upper trendline is formed by connecting the highs, while the lower trendline is formed by connecting the lows. There are three potential outcomes that can form as the price nears the apex,
An ascending triangle is a breakout pattern that forms when the price breaches the upper horizontal trendline with rising volume. The upper trendline must be horizontal, indicating nearly identical highs, which form a resistance price level. The lower trendline is rising diagonally, indicating higher lows as buyers patiently step up their bids. Eventually the buyers lose patience and rush into the stock (or any financial instrument) above the resistance price, which sets off more buying as the uptrend resumes. The upper trendline, which was formerly a resistance, now becomes support.
A descending triangle is an inverted version of the ascending triangle, a breakdown pattern. The lower trendline should be horizontal from identical lows, indicating a support price level. The upper trendline should be falling diagonally towards the apex. The breakdown occurs when the final price collapses through the lower horizontal trendline support as a downtrend resumes. The lower trendline, which was support, now becomes resistance.
A symmetrical triangle is composed of a diagonal falling upper trendline and a diagonally rising lower trendline. Lower highs meets higher lows. As the price moves towards the apex, it will inevitably breach the upper trendline for a breakout and uptrend on rising prices or breach the lower trendline forming a breakdown and downtrend with falling prices. To avoid head fakes, it is important to have a volume spike and at least two candlestick closes beyond the trendline to confirm a true break. Symmetrical triangles tend to be continuation break patterns, meaning that they tend to break in the direction of the initial move before the triangle formed.