Often a chart pattern, the pattern in an uptrend is not only easy to recognize but is also a slam-dunk as an entry or exit signal. It should be noted that a recognized trend should be in place for the triangle to be considered a continuation pattern. In figure 1, you can see an uptrend is in place and the demand line, or lower is drawn to touch the base of the rising lows. The two highs have formed at the top line. These highs do not have to reach the same price point but should be close to each other.
The buyers may not be able to break through the supply line at first and they may take a few runs at it before establishing new ground and new highs. The chartist will look for an increase in the trading as the key indication that new highs will form. An pattern will take about four weeks or so to form and will not likely last more than 90 days.
How do the longs (the buyers) know when to jump into the issue? Most analysts will take a position once the price action breaks through the top line of the triangle with increased , which is when the stock price should rise an amount equivalent to the widest section of the triangle.
The is recognized primarily in downtrends and is often thought of as a signal. As you can see in figure 2, the pattern is the upside-down image of the pattern. The two lows on the above chart form the lower flat line of the triangle and, again, have to be only close in price action rather than exactly the same. The development of the takes the same amount of time as the , and again plays an important role in the breakout to the downside. (Some analysts believe that increased is not all that important. We, however, believe it to be paramount. We always consider the strength or weakness of as being the "straw that stirs the drink.")
So far we have seen two triangle patterns: one, from an uptrend and market move and one from a downtrend with a decidedly look. Symmetrical triangles, on the other hand, are thought of as continuation patterns developed in markets that are, for the most part, aimless in direction. The market seems listless in its direction. The therefore seem to be one and the same.
During this period of indecision, the highs and the lows seem to come together in the point of the triangle with virtually no significant . Investors just don't know what position to take. However, when the investors do figure out which way to take the issue, it heads north or south with big in comparison to that of the indecisive days and/or weeks leading up to the breakout. Nine times out of 10, the breakout will occur in the direction of the existing trend. But, if you are looking for an entry point following a symmetrical triangle, jump into the fray at the breakout point.
The Bottom Line
These patterns, both the symmetrical triangles on the as well as the side are known to experience early breakouts that give investors a "head fake." Hold off for a day or two after the breakout and determine whether or not the breakout is for real. Experts tend to look for a one-day closing price above the in a and below the in chart pattern. Remember, look for at the breakout and confirm your entry signal with a closing price outside the