1. Analyzing Chart Patterns: Introduction
  2. Analyzing Chart Patterns: Why Charts?
  3. Analyzing Chart Patterns: Head And Shoulders
  4. Analyzing Chart Patterns: Cup And Handle
  5. Analyzing Chart Patterns: Double Top And Double Bottom
  6. Analyzing Chart Patterns: Triangles
  7. Analyzing Chart Patterns: Flags And Pennants
  8. Analyzing Chart Patterns: The Wedge
  9. Analyzing Chart Patterns: Gaps
  10. Analyzing Chart Patterns: Triple Tops And Bottoms
  11. Analyzing Chart Patterns: Round Bottoms
  12. Analyzing Chart Patterns: Conclusion

The triangle can be a continuation or a reversal pattern. Although, more often it is a continuation pattern. There are three types of triangles: symmetric, ascending, and descending. For trading purposes they are all the same, the just look different.

A triangle forms when the price action narrows over several price swings. If trendlines are drawn along the highs and lows of the price action, the trendlines converge towards each other. This creates the appearance of the triangle.

How to Use Triangles

Triangles occur in uptrends and downtrends. Since they can be continuation or reversal patterns, traders wait for the price to break out of the pattern to indicate which direction it is going.

Since continuation triangles occur more often than reversal triangles, focus more on breakouts to the upside during uptrends and breakouts to the downside during downtrends.

To draw a triangle there needs to be at least two swing highs and two swing lows. Trendlines are drawn along the highs and lows, respectively, and extend out to the right. The price may make a couple more swings within the triangle. Re-draw the trendline, if needed, to accommodate these new price swings.

When the price moves above the upper trendline it signals the price is likely to move higher. The pattern is complete. If the price drops below the lower trendline it signals the price is likely to continuing dropping.

Symmetric triangles are created when both trendlines are moving towards each other.

symmetric triangle chart pattern
An ascending triangle occurs when the lower trendline is rising while the upper trendline is horizontal. This shows that swing lows are rising but the rallies are stopping near the same resistance level.

ascending triangle chart pattern

A descending triangle is when the upper trendline is sloped downward, while the bottom trendline is horizontal. 

descending triangle chart pattern

With all three types of triangles, take a trade when the price breaks out of the pattern. The exact breakout price is subjective, as tiny alterations in how the trendline is drawn will alter the breakout price level.

Place a stop loss just outside the pattern, on the opposite side from the breakout. For example, if buying an upside breakout, place a stop loss just below the lower trendline. If going short on a downside breakout, place a stop loss just above the upper triangle trendline.

Price Target

The height of a triangle at its base, or widest part, provides some clues as to how far the price could run following the breakout. To get this estimate, add the height of the pattern to the breakout point in the event of an upside breakout. Subtract the height of the triangle from the breakout point for a downside breakout.

Use the swing low and swing high at the base of the pattern to make this estimate, instead of measuring the distance between trendlines.

triangle chart pattern with stop loss and target

Trading Considerations

Since continuations are more reliable than reversals, if an upside breakout occurs during an uptrend consider taking a long position. If the price breaks to the downside during an uptrend, think twice before shorting it.  That said, don't let biases or beliefs interfere with what the market is actually doing. Even though an upside triangle breakout may be more likely during an uptrend, a downside breakout sends a warning signal that the uptrend could be in trouble, or that price will move lower for a while.

The reward:risk ratio on triangles is always better than 1:1, which is favorable. This is because the profit target is based on the entire height of the pattern, whereas the stop loss is based on the smaller portion of the triangle once the trendlines have converged.  Favor trades where the potential reward outweighs the risk by a factor of two or more.


Analyzing Chart Patterns: Flags And Pennants
Related Articles
  1. Trading

    Upside Breakout Coming? Examine The Chart Patterns

    These four stocks are trending higher and present possible near-term entry points based on chart patterns.
  2. Trading

    Triangles: A Short Study in Continuation Patterns

    Learn how to read these formations of horizontal trading patterns.
  3. Trading

    Watch for a New Year Breakout in These Stocks (DHR, FIS)

    The narrowing price patterns in these stocks can't last for long. Watch for a breakout.
  4. Trading

    Continuation Patterns - Part 2

    Take a closer look at triangles, which appear in ascending, descending and symmetrical forms.
  5. Investing

    ETFs with Major Breakout Potential (ASHR, IEMG)

    These ETFs are moving in price patterns, that when broken, could set up big trending moves.
  6. Trading

    Watch for Breakouts in These Commodity ETFs

    Major commodities such as oil, gold, and silver are all consolidating in tight patterns following a rally and are poised to breakout.
  7. Trading

    Awaiting These Major Breakouts (DIS, NFLX)

    These three stocks are moving in patterns that can't last. Watch for the breakout.
  8. Trading

    Retail Poised for a Short-term Rally (XRT)

    Retail ETFs have bounced off support and are threatening to break to the upside. (XRT, RTH)
  9. Trading

    Rising Trend Channel Buying Opportunities

    These two stocks are in long-term rising price channels. Currently trading near support, an upside move indicates another wave higher.
Trading Center